Markets, Economy

Weekly Kickstart (08/03/2020-08/07/2020)

8/3/20 8:00 AM

iStock-626627280.jpgThe stock market rally resumed last week, as the S&P 500 rose by 1.73 percent to 3,271.12. That left the benchmark index up 1.25 percent 2020-to-date, and just 3.40 percent below the all-time closing high. Despite the solid week-over-week performance intraday volatility actually picked up during the past few trading sessions due in part to a deluge of news headlines for investors to react to, e.g. Q2 corporate earnings, another monetary policy announcement from the FOMC, and of course numerous updates on the progress in Congress towards passing the next coronavirus relief package. Also of note, the S&P 500 managed to end July up 5.51 percent, the largest gain since April and the fourth monthly increase in a row. As for seasonality, the broad index has risen 58 percent of the time in August over the past 92 years, with an average gain of 0.63 percent.

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To narrow this down a bit more we can look only at the instances where the S&P 500 climbed by at least 5 percent in July. This has occurred 21 times since 1928 (excluding 2020) and was followed by a positive August 57 percent of the time, with an average increase of 1.77 percent. Three months after such a strong July, though, the index was up only 0.35 percent on average. This is not too surprising since the period includes September, by far the worst month for equities in terms of historical performance (-1.00 percent on average), and by yearend the S&P 500 finished December up 3.47 percent on average from July’s close. Even better, over the past 92 years when the broad index rallied every month during the April through July period, like we just experienced, the S&P 500 was typically flat (+0.04 percent) in August but up 3.27 percent in three months’ time, and 8.74 percent higher by yearend. Such statistics provide yet another example of how strength tends to beget strength in the stock market. However, past performance does not guarantee future returns, and the extreme events of 2020 have arguably made historical comparisons less useful. Further, with the upcoming elections and numerous other potential volatility catalysts for the markets still to overcome in the near-term, many regular investors may want to continue to use rallies as opportunities to review their positioning and make sure it is properly aligned with their 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 the nation’s trade deficit (in goods) narrowed, pending home sales rose, consumer spending firmed, manufacturing activity in the southern and mid-Atlantic regions of the country continued to stabilize, a key gauge of U.S. business investment rebounded, and gross domestic product contracted by less than anticipated. As for the negatives, mortgage purchase applications fell, real estate values appreciated at a slower rate, core durable goods orders disappointed forecasts, household inflation pressures ticked higher, the number of Americans claiming unemployment insurance continued to rise, and consumer confidence softened. This week the pace of economic data remains elevated with several important reports on manufacturing, construction spending, service sector activity, and employment scheduled to be released, including the potentially market-moving July job report from the U.S. Labor Department due out on Friday.

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What To Watch:

Monday

  • PMI Manufacturing Index 9:45 AM ET
  • ISM Mfg Index 10:00 AM ET
  • Construction Spending 10:00 AM ET
  • James Bullard Speaks 12:30 PM ET
  • Charles Evans Speaks 2:00 PM ET

Tuesday

  • Factory Orders 10:00 AM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • ADP Employment Report 8:15 AM ET
  • International Trade 8:30 AM ET
  • PMI Services Index 9:45 AM ET
  • ISM Non-Manufacturing Index 10:00 AM ET
  • EIA Petroleum Status 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
  • Loretta Mester Speaks 5:00 PM ET

Thursday

  • Challenger Job-Cut Report 7:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Robert Kaplan Speaks 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • Employment Situation 8:30 AM ET
  • Wholesale Trade 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
  • Consumer Credit 3:00 PM ET
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures