Todd’s Take on the Market
The S&P 500 hit a record high last Tuesday, recovering 52% since its March 23rd low and officially ending the recent bear market. The S&P 500 ended up 0.77% for the week, losing some ground after the minutes from the Fed expressed uncertainty around the economic recovery and saying that a lot depends on the path of the virus. The Dow ended the week essentially flat, rising 0.09%, while the NASDAQ rose another 2.69% and extending the year-to-date gains to 26.8%.
The Fed’s recent bearish outlook on U.S. economic growth renewed investor worries and amplified concerns over stalled U.S. fiscal stimulus negotiations in Congress. Given this backdrop, global yields trended lower last week, with U.S. 10-Year Treasuries falling 7 basis points (bps) to 0.64%.
In July’s meeting minutes, Fed policymakers reiterated their commitment to keeping interest rates at zero but offered little explicit guidance on other potential support measures.
The latest earnings reports were out for several retailers including Lowes, Home Depot, Walmart and Target. They all crushed it. Home Depot’s quarterly sales soared 23% as consumers took on more DIY projects during the COVID pandemic.
August’s Philly Fed Manufacturing Index came in at 17.2, falling more than expected from last month’s 24.1, but still in growth territory. And it was quite a miss for August Empire Manufacturing, which fell to 3.7 vs. 15 est. & 17.2 in the prior month. New orders contracted but more importantly, employment now is expanding. The headline index is still expanding but respondents’ optimism for the next 6 months has cooled.
Homebuilder sentiment jumped to a record high as home sales also spiked, but soaring lumber prices could ‘dampen the momentum’.
Inflation has firmed recently, with core CPI rising 0.6% in July, the strongest m/m increase since 1991. The recent upswing in momentum and expectations for further fiscal stimulus has caused investors to consider higher inflation as a potential near-term risk. However, in my view, core inflation is unlikely to spike, at least in the near-term.
Finally, on the economic front, weekly jobless claims spiked above 1,000,000 after falling below that in the previous week—layoffs will likely be rising. Continuing claims fell by 640,000 to 14,800,000, but still at astronomical levels. There are still 28,000,000 collecting some form of unemployment.
If the bears are looking for something to hang their hat on, August is on track to be the third month of the past four where insider selling, of their company stock, exceeded $15 billion, according to TrimTabs. Insider selling is at a pace unseen since 2006, while the markets are hitting new highs.
Not much in the way of many earnings reports, or not many that should impact the markets. Consumer confidence and housing data will highlight the economic news this week. We’ll get the 2nd read on Q2 GDP—it’s still going to be U-G-L-Y.
Traders and investors are focused on 3 things, in my opinion.
- Geopolitical—U.S. and China will have a limited impact, but an impact no less. I can’t believe, well yes, I can, they are still talking about a trade deal. Also, what’s going on in Hong Kong and the turmoil surrounding Chinese companies such as Huawei and TikTok.
- Virus and vaccine—it’s going to be interesting to see how many universities and schools react to an explosion of cases that we are already seeing. The markets want some good news on vaccines and you can see them bounce when anything positive is mentioned.
- The election—that’s all I have to say about that, at this time, but it is on the minds of all traders and investors.
Stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
