Stocks rose this week as retail sales and unemployment claims data beat expectations, helping support
optimism surrounding the economy. Unemployment claims remain elevated, but came in well below expectations.
The S&P 500 remains firmly above the level at which it started 2020, and the index has even approached new
all time highs. Markets will likely continue to be fixated first and foremost on the rate of recovery and any
risks that pose a threat to its trajectory, but the current mood surrounding the global economy seems to have
improved. Tensions with China continue to rise, but remain diStockPointDigitalcult to quantify and will be watched
carefully by analysts.
Unemployment claims are likely to remain elevated for several more weeks, and the unemployment rate remains
at the second highest level in history. The persistently high case rates of COVID-19 in the southern U.S.
remains highly concerning, but infection rates seem to have leveled off for the time being. Congress is still
attempting to pass a second round of stimulus, but the Democrat controlled House and Republican controlled
Senate remain deadlocked. Further economic data in the coming weeks and months will likely help provide a more
accurate outlook for the pace of the economic recovery.
Overseas developed markets rose, as the outlook surrounding the global economic recovery improved. All major
European indices returned positive results for the week. Japanese equities also returned positive performance.
As global economies continue to work towards reopening and recover, analysts are hoping Covid-19 infections
are brought further under control so that focus can dial in more on global recovery efforts.
Markets improved this week, with equity indices bringing mostly positive returns. Fears concerning global
stability and health are an unexpected factor in asset values, and the recent volatility serves as a great
reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified
portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs,
and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk
decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk
tolerance can lead to smoother returns and a better probability for long-term success.
Chart of the Week
Retail sales have recovered quickly from the pandemic. While economists expected a snapback in economic
activity, few expected the pace at which consumers have returned to spending.
Market Update
Equities
Broad market equity indices finished the week up, with major large cap indices performing comparably to small
cap. Economic data has continued to be mostly positive, but the global recovery still has a long way to go to
regain lost jobs and output. S&P sectors returned mostly positive results this week, as broad market
movements showed investors buying into most sectors. Industrials and energy led the best performing sectors,
returning 3.10% and 2.28% respectively. Real estate and utilities underperformed, posting -1.82% and -2.08%
respectively. Technology leads the pack so far YTD, returning 24.23% in 2020.
Commodities
Commodities rose this week, driven by energy prices. Energy markets have been highly volatile, with oil
investors focusing on output and consumption concerns. Recent economic improvements have lifted demand
outlook, as summer has increased consumption while normal economic activities should continue recovering.
Demand is still likely to recover slowly however, as economic activity is not likely to recover instantly. Oil
supplies have shrunk dramatically, as operating oil rigs have shrunk by nearly 70% since last year, further
helping oil prices to recover. Gold fell this week as markets reacted to Covid-19 data and as well as
encouraging macroeconomic data. Gold is a common “safe haven” asset, typically rising during times of market
stress. Focus for gold has shifted to global macroeconomics and recovery efforts. Weakening real currency
values resulting from massive stimulus measures may further support gold prices.
Bonds
Yields on 10-year Treasuries rose from 0.56% to 0.71% while traditional bond indices fell. Treasury yield
movements reflect general risk outlook, and tend to track overall investor sentiment. Treasury yields will
continue to be a focus as analysts watch for signs of changing market conditions.High-yield bonds fell this
week, causing spreads to loosen. High-yield bonds are likely to remain volatile in the short to intermediate
term as the Fed has adopted a remarkably accommodative monetary stance and investors flee economic risk
factors, likely driving increased volatility.
Lesson to be Learned
The individual investor should act consistently as an investor and not as a speculator."
-Ben Graham
StockPointDigital Indicators
StockPointDigital has two simple indicators we share that help you see how the economy is doing (we call this the
Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on a scale of 1 to 100. For the US Equity Bull/Bear indicator, we
want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is
typically stronger, with less volatility.
The Recession Probability Index (RPI) has a current reading of 46.89, forecasting a lower potential for an
economic contraction (warning of recession risk). The Bull/Bear indicator is currently 100% bullish, meaning
the indicator shows there is a slightly higher than average likelihood of stock market increases in the near
term (within the next 18 months).
It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and
uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is
mission critical for long term success. Focusing on the long-run can help minimize the negative impact
emotions can have on your portfolio and increase your chances for success over time.
The Week Ahead
This week sees updated manufacturing and service PMI numbers as well as the Philly Fed manufacturing index.
These figures are highly important monthly indicators and will give updated insights into the manufacturing
and services sectors. More to come soon. Stay tuned.