Markets, Economy

Weekly Kickstart (06/29/2020-07/03/2020)

6/29/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 2.86 percent to 3,009.05. That still left the benchmark index down just 6.86 percent 2020-to-date, and 34.49 percent above the March low. Any kind of pullback was far from surprising considering that stocks had recently posted their biggest 50-day rally in history. Whether or not this was just some healthy profit taking or the start of a larger drawdown remains unknown, but the excuses for last week’s selling were myriad. For starters, the number of positive COVID-19 tests continued to rise rapidly across the country. The market’s main concern about this latest coronavirus development is that it could cause some states to consider slowing or even reversing their economic reopenings. However, although a growing number of people have become infected, the rise in the death rate has been much less pronounced. The latter is of course a lagging indicator, so more clarity will not be available until in a few weeks, but for now the optimistic explanation of the divergence is that it has been mostly younger, healthier people better able to fight off the virus who have become infected in this latest wave. Regardless, policymakers if needed may try to rely on smarter containment measures such as widespread mask wearing, consistent social distancing practices, and other more-targeted restrictions that do less damage to GDP than the blanket lockdown approach that permanently shuttered thousands of small businesses and caused nearly 50 million Americans to claim unemployment benefits at least once during the last 14 weeks.

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Another issue likely weighing on the markets during the past few trading sessions was a shift in the legislative pipeline that could mean an actual vote on some sort of “CARES Act 2.0” package will be delayed until well into July. Several lawmakers challenge whether more fiscal support is needed, but from a purely stock market perspective it is highly likely that the sharp rebound in equities off the March low was not only helped by the passage of the first CARES Act but also the anticipation that additional rounds of fiscal support would follow. Moreover, even if the consensus is that another relief package is a “sure thing,” the headline risk (volatility) for equities from this issue should stay high until something is actually signed into law, just as we saw with the passage of the original CARES Act and the additional funding for the Paycheck Protection Program. Add to all of this the uncertainty still surrounding U.S.-China trade relations, corporate earnings, and the November elections, and there are clearly plenty of potential reasons for market volatility to remain elevated in the near-term. Many 401(k) investors can fortunately look past these day-to-day swings in stock prices and stay focused on the long-term objective of preparing for retirement through years of routine, tax-advantaged plan contributions, but it can also be beneficial to use rallies as opportunities to review your portfolio and make sure it is properly aligned with your risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that new home sales jumped, real estate values continued to rise, manufacturing activity stabilized, a key gauge of U.S. business investment rose by more than forecast, household inflation pressures remained non-existent, consumer spending rebounded, and demand for American-made durable goods surged. As for the negatives, the nation’s trade deficit (in goods) widened, mortgage purchase applications slid, existing home sales declined, personal income for Americans fell, consumer confidence cooled, and first-time claims for unemployment insurance continued to decrease at a slower rate. This holiday-shortened week the pace of economic data actually picks up with several important reports on housing, manufacturing, consumers, and employment scheduled to be released, including the potentially market-moving June job report from the U.S. Labor Department due out on Thursday.

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What To Watch:

Monday

  • Pending Home Sales Index 10:00 AM ET
  • Dallas Fed Mfg Survey 10:30 AM ET
  • John Williams Speaks 3:00 PM ET

Tuesday

  • 2-Yr Note Settlement
  • 5-Yr Note Settlement 
  • 5-Yr TIPS Settlement 
  • 7-Yr Note Settlement 
  • 20-Yr Bond Settlement
  • John Williams Speaks 7:00 AM ET
  • S&P Corelogic Case-Shiller HPI 9:00 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Confidence 10:00 AM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Challenger Job-Cut Report 7:30 AM ET
  • ADP Employment Report 8:15 AM ET
  • PMI Manufacturing Index 9:45 AM ET
  • ISM Mfg Index 10:00 AM ET
  • Construction Spending 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • FOMC Minutes 2:00 PM ET

Thursday

  • Employment Situation 8:30 AM ET
  • International Trade 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Factory Orders 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 3-Yr Note Announcement 11:00 AM ET
  • 10-Yr Note Announcement 11:00 AM ET
  • 30-Yr Bond Announcement 11:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET
  • SIFMA Rec. Early Close 2:00 ET

Friday

  • Independence Day Holiday Observed
  • Markets Closed
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures