This Week's Market Moves

The stock market reacted positively to strong employment numbers, despite a surge in coronavirus cases. Stocks ended the week higher, with the Nasdaq Composite reaching a record high and the S&P 500 index rising 1.55%. Looking at the quarter, stocks finished with the best quarterly return since 1998. Here are some other insights on the markets and the economy from this week:

Stock prices rose as the prospects for a COVID-19 vaccine improved. On Wednesday, Pfizer, in partnership with the biotech firm BioNTech, revealed positive early-stage trial results for its vaccine. Pfizer’s human trial involved 45 participants, aged 18 to 55, over a 21-day period. Individuals treated with the drug successfully developed higher levels of antibodies than those typically seen in recovered cases; however, at high doses, the vaccine did cause fever and other side effects.

Across the country, a record 50,203 cases were reported on Wednesday, eclipsing the previous high of 45,255 in a single day, according to data compiled by Johns Hopkins University. Texas posted its worst day yet for new cases and eight states reported record numbers of infections. Governors across these states announced new closures. New York, New Jersey, and Connecticut are requiring that people traveling back from these states quarantine for two weeks.

U.S. Government bond yields remain stuck in a tight range, waiting for clues on the economy or supply dynamics before moving decisively in one direction or another. The 10-year Treasury yield ended the week up four basis points at 0.68%.

Federal Reserve Chairman Powell said in remarks to Congress that the U.S. economy faces “extraordinary uncertainty,” considering the continued spread of the coronavirus. He spoke about the economic indicators tracking unemployment, consumer spending and manufacturing surpassing expectations and the optimism regarding a V-shaped recovery. In a statement before the House Financial Services Committee, Powell said: “We have entered an important new phase and have done so sooner than expected…while this bounce back in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check.” The market viewed his comments positively.

The residential housing market continues to improve. The major averages got a boost after the National Association of Realtors (NAR) said pending home sales jumped by a record 44.3% in May. The spike was the highest monthly gain since NAR began tracking in 2001, and serves as an indicator that demand for homes remains strong. Pent-up demand and the continuance of low interest rates are pulling buyers back into the market, despite high unemployment rates and economic uncertainty.

Corporations begin to report their second quarter earnings next week. Earnings are expected to fall, but valuations have largely not corrected. Investors have written off 2020 expectations and are looking towards a recovery in 2021. The worst decline in earnings is expected from the energy, consumer discretionary, and industrial sectors. On a relative basis, utilities, technology, consumer staples and healthcare are expected to fare better.

Unemployment declined to 11.1% and 4.8 million jobs were added, with most of the increase in the hospitality and leisure sectors. Initial jobless claims came in at 1.4 million. The cost to the Treasury remains high, paying out more than $108 billion in unemployment benefits in June, exceeding the $93.6 billion in May. The government continues to play catch-up, with a large backlog in processing claims

United Airlines announced that it will be adding 25,000 additional flights, which is only 40% of the number of flights flown in August 2019. With the E.U. ban on U.S. travelers, airlines are trying to make the most of domestic flights. Although air travel is still only a fraction of what is was last year, the uptick in people willing to travel is an opportunity on which major airlines seek to capitalize.

Oil prices recovered to around $40/barrel last week. This week, prices declined as government data showed U.S. crude storage rose by 1.4 million barrels to 540.7 million, in total. This weekly increase was larger than expected, likely due to the rise in coronavirus cases reducing the demand for oil. This decline is only the second weekly decline since April.

The U.S. Department of Labor (DOL) published a proposed rule that would regulate ERISA plan fiduciary conduct when considering ESG/ETI investments, due to the sudden rise in interest. The DOL stated that as long as fiduciaries are considering these investments for the benefit of participants, then the increase is justified. Essentially, these new investments should be treated and analyzed the same as other types of investments, and should meet the same criteria.

Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend: S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Blend: Russell 2000

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Note that this article was published on July 6, 2020. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.


Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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