Markets, Economy

Weekly Kickstart (07/27/2020-07/31/2020)

7/27/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 0.28 percent to 3,215.63. That still left the benchmark index down just 0.47 percent 2020-to-date, and only 5.04 percent below the all-time closing high. Much of the focus in the markets lately has been on the next coronavirus relief package working its way through Congress. A key aspect of this new legislation that adds a bit more urgency to its passage is addressing the generous unemployment insurance boost currently set to expire and the end of July. The price action this month suggests that investors have generally been optimistic that lawmakers will reach some kind of agreement ahead of the deadline, but as we saw with prior pandemic aid packages market volatility could increasingly pick up until a deal is actually finalized and sent to the President’s desk. This environment also helps explain why stocks have for the most part overlooked July’s slight deterioration in incoming employment data caused by the “second wave” of the coronavirus since every weak report arguably puts more pressure on Congress to get a deal done in a timely fashion.

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Outside of the legislative pipeline there are a few other issues the markets may be paying attention to this week. For example, the Federal Reserve will make another announcement on monetary policy on Wednesday. No actual changes are expected at this month’s FOMC meeting, but investors will pay close attention to the contents of the statement for clues as to where policy may be headed, i.e. forward guidance. Officials are likely to reiterate that policy will remain highly accommodative for the foreseeable future and that additional policy tools to keep financial markets functioning are available should the situation warrant such actions. It is also likely that chair Powell in his post-statement press conference will again stress that Congress needs to do more on the fiscal front to support the economy during the crisis (reduce its reliance on the Fed). Elsewhere, the corporate earnings season for the second quarter of 2020 will continue to ramp up this week. For the 26 percent of S&P 500 companies that have already released their Q2 profit results, 81 percent have reported a positive earnings per share (EPS) surprise, according to FactSet, and in aggregate companies are reporting earnings that are 11.4 percent above estimates. The profit figures many companies are reporting are indeed quite terrible, but this was an expected side effect of last quarter’s economic disruptions caused by the coronavirus and related containment efforts. Further, what seems to matter more to the markets at the moment is that the profit figures are “less terrible” than anticipated, and companies reporting positive earnings surprises are even being rewarded more than average in terms of post-announcement share price appreciation.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage purchase applications increased, new home sales jumped, business activity in the Midwest region of the country stabilized, and continuing jobless claims declined for the 7th consecutive week. As for the negatives, real estate values fell, existing home sales rose by less than forecast, and the number of Americans making first-time claims for unemployment benefits climbed to 1.4 million. This week the pace of economic data picks up with several important reports on manufacturing, consumers, employment, and inflation scheduled to be released, including the first official estimate of U.S. gross domestic product (GDP) growth for the second quarter of 2020 due out on Thursday.

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What To Watch:

Monday

  • Durable Goods Orders 8:30 AM ET
  • Dallas Fed Mfg Survey 10:30 AM ET
  • 2-Yr Note Auction 1:00 PM ET
  • 5-Yr Note Auction 1:00 PM ET

Tuesday

  • FOMC Meeting Begins
  • S&P Corelogic Case-Shiller HPI 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 7-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • International Trade in Goods 8:30 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • FOMC Meeting Announcement 2:00 PM ET
  • Fed Chair Press Conference 2:30 PM ET

Thursday

  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 7-Yr Note Settlement
  • 10-Yr TIPS Settlement
  • 20-Yr Bond Settlement
  • Personal Income and Outlays 8:30 AM ET
  • Employment Cost Index 8:30 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch

Disclosures