Markets, Economy

Weekly Kickstart (08/24/2020-08/28/2020)

8/24/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.72 percent to 3,397.16. That left the benchmark index up 5.15 percent 2020-to-date, and 51.84 percent above the March panic low. In April we said that the bear market that began in Q1 had likely ended and that equities had entered a new bull market. This was in part due to major indices having already surged by at least 20 percent off of the low, and even more so because of the trillions of dollars in fiscal and monetary relief from the government that dramatically improved the immediate outlook for financial assets and the overall economy. Doubts about the rebound, though, have not been in short supply, and even after the S&P 500 posted its largest 100-day gain in nearly a century 35 percent of participants in Bank of America Merrill Lynch’s latest fund manager survey said that they still view the current run-up in equities as a “bear market rally.” That is a marked drop from 47 percent in July but it also means more than one in three professional money managers continue to think we will at the very least re-test the Q1 extremes.

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Another common critique has been that a new bull market has not truly started until the previous peak is taken out. Well even this qualifier can no longer be used because last Tuesday the S&P 500 closed at a new all-time high, meaning that even with the more conservative definition this was still one of the shortest bear markets in history. Does “officially” entering a new bull market mean stocks will continue going straight up? Of course not, and the S&P 500 could even tumble by 19.99 percent from last week’s high and technically maintain its bull market status, similar to what occurred in December 2018. There are also lots of potential near-term volatility catalysts left for the market to overcome, as well as a handful of “contrarian” indicators, e.g. short interest recently falling to a record low. However, none of this may be too concerning for experienced 401(k) investors who recognize that volatility is a natural occurrence in the market. For example, even before the Q1 tumult, the S&P 500 since 1980 had experienced an average intra-year drawdown of 13.8 percent and still managed to post a positive annual return in 30 of those past 40 years, with an average (geometric) gain of 8.9 percent. Other investors less comfortable with a potential uptick in volatility should consider using the latest rally in the market as another opportunity 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 home purchase applications rose, housing starts increased, building permits jumped, existing home sales surged, homebuilder sentiment climbed to a record high, and continuing claims fell to a 4-month low. As for the negatives, factory activity in the northeast region of the country moderated, and the number of Americans making first-time claims for unemployment benefits disappointed forecasts. This week the pace of economic data remains slow (ahead of the September deluge) but there are still a few important reports on housing, manufacturing, consumers, and inflation scheduled to be released.

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What To Watch:

Monday

  • Chicago Fed National Activity Index 8:30 AM ET

Tuesday

  • S&P Corelogic Case-Shiller HPI 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Consumer Confidence 10:00 AM ET
  • New Home Sales 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr Note Auction 1:00 PM ET
  • Mary Daly Speaks 3:25 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 5-Yr Note Auction 1:00 PM ET

Thursday

  • 2020 Jackson Hole Economic Policy Symposium
  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Jerome Powell Speaks 9:10 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • 2020 Jackson Hole Economic Policy Symposium
  • Personal Income and Outlays 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, CNBC, BofAML, J.P. Morgan, FRBSL

Post author: Charles Couch

Disclosures