This Week's Market Moves: June 29, 2020

Stock prices delivered modest gains this week, with the S&P 500 index rebounding 1.9%. A stronger-than-expected retail sales report, along with hopes for additional stimulus, helped stocks erase some of last week’s sharp losses. Here are some other insights on the market and the economy from this week:

Concerns over the resurgence of coronavirus cases, uncertainty over state re-opening plans, and rising tensions between the U.S. and its trading partners weighed on stock prices, with the major indices posting losses of 2.86% to 3.31% this week. While there are concerns on the horizon, the tsunami of liquidity injected into the financial markets by policymakers is supportive for risk assets. However, it is worth noting that the S&P 500 index has stalled multiple times trying to rise above its pre-pandemic level in recent weeks. .

While stock prices have recovered a substantial portion of their losses from the steep downturn a few months ago, many investors have not fully participated in the recovery. Between the record level of cash in bank accounts and the nearly $5 trillion resting in money markets, a heap of cash is still sitting on the sidelines. What this means for the future direction of the market is unclear. Bulls expect investors will re-deploy the cash when there is an attractive buying opportunity, while bears prefer the safety of cash, believing that stock prices have soared too far, too fast.

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 down six basis points to 0.64%. Meanwhile, junk bond issuance set another record, with U.S. high-yield issuers bringing over $46 billion to market this month. Across the pond, there was insatiable demand for Austria’s 100-year bond with a paltry yield of 0.88%.

The tech giants, also known as the acronym FANGMAN (Facebook, Amazon, Netflix, Google, Microsoft, Apple and NVIDIA), have had an incredible run. As big tech continues to dominate, the combined market capitalization of these seven companies surpassed over $6 trillion dollars this week. To put this into perspective, the combined market cap is now bigger than the GDP of Japan or Germany. Equally staggering is the market cap of the “Fab Five,” which excludes Netflix and NVDIA. The top five companies now constitute more than 20% of the S&P 500 index, the highest concentration risk within the index since the dot-com bubble.

The residential housing market is starting to perk up. New home sales and home purchase applications have surged in recent weeks, as prospective homeowners rushed to lock in the lowest mortgage rates in history, despite a tougher lending environment. However, commercial real estate remains under pressure, as landlords struggle to collect rent from their tenants during the pandemic. These cross currents continue to weigh unevenly on the real estate sector, with housing-linked stocks substantially outperforming hotels, retail, and office properties.

Gold prices soared to their highest level since 2012 this week, climbing above $1,771.23 per ounce, up 14.77% on a year-to-date basis. This is not surprising, as gold is considered a safe-haven asset during times of uncertainty. While nominal and real yields have been fluctuating near historic lows, gold prices have continued to rally. The rising gold prices could be signaling that inflation is on the horizon or that the U.S. dollar’s status as a reserve currency is at risk.

The Federal Reserve’s balance sheet has exploded since the pandemic hit, as policymakers have ramped up its purchases of Treasuries, mortgages, corporate and municipal bonds to support the economy and stabilize the financial markets. The Fed’s balance sheet now tops over $7 trillion dollars, more than double the peak reached after the 2008 financial crisis. Before the crisis, securities held by the Fed were slightly below $900 billion. The longer-term implications of the substantial increase in the Fed’s balance sheet is the subject of much debate among economists. Some believe that the Fed’s balance sheet explosion will eventually spark inflation or possibly hyper-inflation. Others take a more optimistic view, suggesting that the increase simply reflects a shift in the way the Fed implements monetary policy.

Over 47 million Americans have filed for unemployment benefits since the pandemic began. This far exceeds the roughly 38 million Americans who filed for benefits during the 18-month long Great Recession. While there has been a slow improvement in the continuing claims data, which showed that 19.5 million Americans are currently receiving benefits, hopes of a swift recovery is looking less likely. The recent increase in coronavirus cases could impede efforts to re-open the economy and get people back to work. Although, talks of a potential second round of stimulus targeted for people who actually lost their job or who had a significant drop in income may help ease the burden for those struggling the most.

The impact of the COVID-19 virus on the economy has significantly affected the airline industry, and now with the resurgence of cases, the E.U. has considered placing a ban on U.S. visitors to all of its countries. There appeared to be a positive outlook for travel, as airlines discussed how to safely resume flying with guidance from the White House. However, it does not seem likely that a rebound will happen any time soon.

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 June 29, 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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