This Week's Market Moves | August 3, 2020

The markets were volatile last week, in the face of earnings reports and the continued global spread of the coronavirus. Below are some additional insights on the market and the economy from last week:

The worst quarterly decline in economic activity, rising jobless claims, and a dovish Fed kept a lid on stock prices this week, with the S&P 500 index down 0.27%. The failure of Congress to arrive at an agreement on the next stimulus bill also weighed on the markets, but better-than-expected results from the largest technology companies late in the week lifted markets off its lows.

Earnings from the big tech heavy weights - Apple, Facebook, Alphabet and Apple - came in better than expected this week. In combination, the companies saw their market cap increase by $250 billion, after investors digested strong earnings reports. Apple substantially beat analysts’ estimates and announced a four-for-one stock split. Apple, Amazon, Alphabet and Facebook have a combined market cap above $5 trillion, approximately one-fifth of the entire S&P 500 total market cap.

The amount of negative-yielding debt has been steadily climbing since mid-March. There are now $15 trillion worth of bonds trading with yields below zero, just shy of the $17 trillion peak reached last year. The latest move comes after Central Banks doubled-down on their ultra-accommodative policies when the pandemic started sweeping across the globe. It is not just government bonds that have been impacted; some corporate bonds are trading with sub-zero yields too.

Fed policy makers left interest rates near zero at their policy meeting this week, also pledging to maintain their support for the economy as it recovers from its worst downturn in over 70 years. In the press conference following the meeting, Fed Chief Powell commented that there has been a slowing in the pace of the recovery due to the recent surge in coronavirus cases. The news came as no surprise, since a slew of Fed officials have been warning that the economy may face a deeper-than-expected downturn in recent weeks.

Gold futures surged to another all-time high of $2,000 per ounce this week, beating the previous record set in September 2011. However, it is not just gold; silver prices are soaring, too. This is not all that surprising, since investors tend to view gold and other precious metals as a safe-haven investment during times of crisis. The combination of widespread economic uncertainty, rising geopolitical tensions, plunging real interest rates, and a weaker U.S. dollar has boosted the appeal of safe-haven assets. On a year-to-date basis, gold is up 25.5%.

The U.S. dollar is headed for its worst monthly performance in almost a decade. Initially gaining value versus other currencies, as a safe-haven investment in the pandemic, the dollar rose to a three-and-a-half year high in March. Currently, the dollar is depreciating against global currencies, as the continued spread of the coronavirus in the U.S. ignites fears that the economic recovery will stall. Contributing to the decline is the prospect of mounting U.S. deficits, and a prolonged low interest rate environment. The deficits will have to be paid for through Treasury debt issuance. The U.S. Dollar is the single most popular currency in the world and is the dominant reserve currency in use around the globe.

U.S. economic growth plummeted to an annualized rate of -32.9% in the second quarter, the largest decline on record, which dates back to the 1940s. While growth is expected to pick up in the third quarter as the economy reopens, some economists are questioning how sustainable the rebound will be, given the recent surge in coronavirus cases. Before the crisis, economic growth had ranged between 2.0% and 3.0%.

The number of Americans filing for unemployment benefits rose for the second week in a row, with another 1.4 million this week. Continuing claims, which measure those currently receiving benefits, rose more than expected to 17.0 million. The worsening jobs numbers are attributed to states and business having to roll back reopening plans due to the resurgence in coronavirus cases.

Consumer confidence declined by more than expected in July. It appears that the recent flare-up of COVID-19 cases is weighing on sentiment, as many Americans worry that the resurgence will threaten the economic recovery. Consumers are also concerned about job and income prospects, as many states have paused or rolled back their reopening plans, adding to the uncertainty.

Exxon Mobil and Chevron Corp. posted the worst losses in decades, as the pandemic contributed to a global supply glut and demand severely declined. Exxon reported a $1.1 billion second quarter loss, which was the largest quarterly loss in the company’s history. Chevron recorded its weakest earnings in at least three decades. The company announced plans to curtail 5% of its worldwide output and postponed plans to ramp up production in the Permian Basin. Royal Dutch Shell also reported a sharp drop in profits for the quarter. Analysts had warned that oil company earnings would be weak, but results were much worse than expected. Energy is currently the worst performing sector in the S&P 500 Index this year.

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 August 3, 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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