Markets, Economy

Weekly Kickstart (09/21/2020-09/25/2020)

9/21/20 8:00 AM

iStock-626627280.jpgStocks continued lower last week, as the S&P 500 fell by 0.64 percent to 3,319.47. That still left the benchmark index up 2.75 percent 2020-to-date, and 7.30 percent below the all-time closing high hit earlier this month. The incoming data on fund flows could suggest that many investors have so far treated the September pullback as an opportunity, an encouraging sign for those in the “healthy correction” camp mentioned in the previous Kickstart. Additional support for the bulls came from the Federal Open Market Committee (FOMC) last week after it indirectly reassured the markets that monetary policy is likely to remain highly accommodative for the foreseeable future. Specifically, updated economic projections showed that the committee anticipates inflation remaining below 2.0 percent until 2023 at the earliest, and no rate hikes are therefore forecast to occur within this same horizon. U.S. gross domestic product growth projections were also updated, with the committee now seeing the pandemic-related hit to GDP this year being much smaller than previously feared.

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Expected growth during 2021 and 2022 was as a result revised slightly lower but GDP is still seen expanding at a much faster rate than what was experienced during the past two decades. Put simply, the Federal Reserve anticipates above trend economic growth for the next few years while still keeping the federal funds rate at zero. Such conditions are generally considered to be very favorable for equities but there are also several near-term risks left for the markets to overcome. For example, the outcome of the November elections will remain a major unknown for investors over the next few months, and the threat from the coronavirus and a reinstatement of the lockdowns will likely not be completely eliminated until a vaccine becomes widely available. Further, the recent price action has arguably been a sign that the continued lack of progress on the next fiscal relief package, i.e. “CARES 2.0,” is finally starting to weigh on stock prices, and some traders believe that only further declines will put sufficient pressure on lawmakers to get something done before the election. Altogether, the longer-term prospects for both stocks and the broader economy remain encouraging, but many potential volatility catalysts will continue to loom over the market 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 homebuilder optimism climbed to a record high, single-family housing construction increased, consumer confidence firmed, regional manufacturing gauges signaled a continued expansion in activity, industrial production rose, and capacity utilization, often used as a leading indicator of inflation and potential output, stabilized. As for the negatives, home purchase applications fell, retail sales growth disappointed forecasts, and the number of Americans making first-time claims for unemployment benefits remained elevated. This week the pace of economic data slows down considerably but there are still a few important reports on housing and manufacturing scheduled to be released, along with a handful of potentially market-moving speeches from Federal Reserve officials.

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What To Watch:

Monday

  • John Williams Speaks 6:00 PM ET
  • Robert Kaplan Speaks 6:00 PM ET

Tuesday

  • Existing Home Sales 10:00 AM ET
  • Charles Evans Speaks 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • Jerome Powell Speaks 10:30 AM ET
  • 2-Yr Note Auction 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Loretta Mester Speaks 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • PMI Composite Flash 9:45 AM ET
  • Jerome Powell Speaks 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • Eric Rosengren Speaks 12:00 PM ET
  • 5-Yr Note Auction 1:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • New Home Sales 10:00 AM ET
  • Jerome Powell Speaks 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • James Bullard Speaks 12:00 PM ET
  • Charles Evans Speaks 1:00 PM ET
  • 7-Yr Note Auction 1:00 PM ET
  • John Williams Speaks 2:00 PM ET

Friday

  • 2-Yr FRN Note Settlement
  • Durable Goods Orders 8:30 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FRBG, BofAML, FRBSL

Post author: Charles Couch

Disclosures