Markets, Economy

Weekly Kickstart (08/31/2020-09/04/2020)

8/31/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 3.26 percent to 3,508.01. That was another new all-time closing high and it left the benchmark index up 8.58 percent 2020-to-date, and 56.79 percent above the March panic-low. Earlier this year the Federal Open Market Committee (FOMC) in a rare intra-meeting move slashed the federal funds rate to essentially zero. This, along with the massive fiscal support provided by Congress, were the unprecedented policy measures that helped remove the bulk of the downside tail risk for financial markets in March, and in turn kickstarted the new bull market. Since the Q1 bottom subsequent FOMC meetings have largely been non-events as officials simply reiterated that policy would remain highly accommodative for the foreseeable future and that additional policy tools to keep financial markets functioning are available if needed. However, with incoming economic data continuing to generally surprise to the upside many market participants have started to question just how long rates can actually remain this low.

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Well last week at the annual Jackson Hole symposium (this year conducted virtually due to the pandemic) Fed chair Jerome Powell provided some clarity by stating that the committee would make a few technical changes to the framework for assessing price pressures and the labor market. Put simply, after years of undershooting the 2 percent inflation target and full-employment objective, the Fed will now allow such metrics, and in turn the entire economy, to run “hot” for longer than it would have in the past. This dovish pivot can be viewed as great news for stocks and other risk assets, but rally skeptics may argue that the policy move was widely expected and that this is therefore another “buy the rumor, sell the news” situation. Further, regardless of why stocks continue to rise the positive price action seen recently has been relentless, with the S&P 500 posting just four downs days in the entire month of August (assuming another green close today). The broad index even climbed to a new record high every single day last week. Whether or not this positive momentum continues into September remains unknown, especially with seasonal headwinds (more on this next week), the upcoming election, and a handful of other potential volatility catalysts left for the markets to overcome in the near-term. Any regular investors uncomfortable navigating this environment should consider consulting with a professional financial advisor to make sure their positioning 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, new home sales surged, pending home sales jumped, household income and spending growth exceeded forecasts, inflation pressures remained muted, manufacturing activity expanded at a faster rate, Q2 GDP was revised higher, demand for American-made durable goods rebounded, and an important gauge of U.S. business investment increased by more than anticipated. As for the negatives, home values appreciated at a slower rate, initial jobless claims unexpectedly climbed, and consumer confidence softened. This week the pace of economic data picks up with several important reports on manufacturing, service-sector activity, productivity, small business, and employment scheduled to be released, including the potentially market-moving August job report from the U.S. Labor Department due out on Friday.

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What To Watch:

Monday

  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 7-Yr Note Settlement
  • 20-Yr Bond Settlement
  • 30-Yr TIPS Settlement
  • Richard Clarida Speaks 9:00 AM ET
  • Dallas Fed Manufacturing Survey 10:30 AM ET

Tuesday

  • PMI Manufacturing Final 9:45 AM ET
  • ISM Manufacturing Index 10:00 AM ET
  • Construction Spending 10:00 AM ET
  • Lael Brainard Speaks 1:00 PM ET

Wednesday

  • Motor Vehicle Sales
  • MBA Mortgage Applications 7:00 AM ET
  • ADP Employment Report 8:15 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Beige Book 2:00 PM ET

Thursday

  • Challenger Job-Cut Report 7:30 AM ET
  • Goods and Services Trade 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Productivity and Costs 8:30 AM ET
  • PMI Composite Final 9:45 AM ET
  • ISM Services Index 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
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET

Friday

  • Employment Situation 8:30 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FRBG, FRBSL

Post author: Charles Couch

Disclosures