Todd’s Take on the Market
Supportive industrial and labor data, and an available Russian vaccine, have encouraged global equity markets to grind higher. However, the optimism is balanced against escalating U.S./China risk, a re-imposition of European travel restrictions and unfinished U.S. fiscal stimulus negotiations. With Congress on recess, a phase 4 stimulus bill will likely be revealed in early September. The S&P 500 came close to its all-time high mid-week but ultimately retraced some gains by Friday to advance 0.69% for the week. The Dow rose 1.87% and the NASDAQ ended the week up 0.09%.
U.S. Treasury yields moved higher for the week as a vaccine insight made a macro rebound more likely. The yield on the U.S. 10-Year Treasury hit 0.70% mid-week and ended at 0.71%.
July’s industrial production prints for the U.S. and China demonstrated another move toward economic activity normalization. In the U.S., industrial production climbed 3.0% month-on-month which met consensus expectations. Capacity utilization increased by 2.1%, though still below pre-COVID levels in the high-70’s. China’s year-on-year (yoy) industrial production printed at 4.8%, unchanged from the prior month.
The Producer Price index (PPI) and the Consumer Price index (CPI) both rose more than expected. I don’t think it’s a sign of a healing economy, but more about the soaring prices for producers bringing goods to market as well as soaring consumer prices in the grocery stores and restaurants. The figure was also supported by a price recovery from the most COVID-vulnerable sectors, including lodging, airfares and apparel.
U.S. jobless claims came in at 963,000. This is the first week in months they’ve been below a million. It’s still crazy high. If jobless claims running just under a million in the fifth month of the recession is your benchmark for an economy being in good shape, may I suggest you’ve set the bar too low? That’s still four times the pre-recession level and about 300,000 above the worst level of ‘08. Unemployment remains in double digits.
Retail sales showed the consumers spent less than expected in July as a pullback in auto sales helped cool an economy struggling to shake off the effects of the coronavirus pandemic. Retail sales rose 1.2% for the month, against the expected increase of 2.3% from economists surveyed by Dow Jones. The news wasn’t all a letdown; however, excluding autos, the gain was 1.9%, ahead of the 1.2% estimate.
The University Of Michigan Sentiment for August rose to 72.8 (estimate 72.0; previous 72.5).
U.S. industrial production had a solid gain in July, but the index remains well below pre-pandemic levels.
The markets, right now, are looking forward based on a few issues. The biggest issue, which won’t be solved before Labor Day is another round of stimulus. The next issue would be a vaccine. Many question Russia’s development of a vaccine, but there is always hope. The final issue we are facing is the elections in November. This could potentially be a major issue for stocks and bonds alike.
This week, we get several retail earnings including Home Depot and Lowes. I look for good numbers coming from them. We will also get, on the economic front, the most recent minutes from the FED’s July meeting, we don’t expect them to be a market mover. We will also get housing starts and building permits, which have been strong.
Please stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
