Market Update - July 20th, 2020Submitted by Jodi Vleck , Beta Wealth Group on July 20th, 2020
Economic data last week included rebounds in retail sales, industrial production, and housing. Inflation metrics also showed a small creep up on prices for certain goods. Manufacturing data was mixed, while consumer sentiment weakened slightly.
Equities in developed nations around the globe generally gained, with hopes for a trough in economic growth and stock earnings, in addition to positive Covid vaccine tests. U.S. treasury bonds were flattish, while corporate credit and foreign bonds rallied. Commodities were little changed for the week on net.
U.S. stocks experienced strong gains last week, with the S&P reaching levels not seen since past highs in February. There were few news events to drive this optimism, other than continued optimism over a timeline for a vaccine based on several positive early test results, which offset news of setbacks for several regions that have paused re-openings—notably continued rising cases in the South, West, and now the Mountain states. Dr. Anthony Fauci, in charge of the U.S. Covid effort, has offered hope of a viable vaccine by year-end, which has surpassed the general consensus calling for early- to mid-2021.
By sector, industrials, materials, and health care each rose over 5% on the week, while technology and communications bucked recent trends by being the only sectors that lost ground last week. Disappointing results for FANG member Netflix was a key part of pulling down the communications group. Small caps have rallied a bit with broader market sentiment moving a bit back toward cyclicals. Coming weeks will provide more clarity on the earnings environment for Q2, but, so far, the poor results are not quite as bad as the dour estimates.
Foreign stocks gained with similar hope for Covid vaccine progress. Europe and U.K. experienced the strongest gains, on par or better with results in the U.S. While the ECB took no policy action last week, discussions over additional stimulus measures appeared to help sentiment. On the other hand, emerging markets lost ground, as Chinese stocks declined with government language pointing to a continued need for tempered expectations, perhaps in response to the sharp market rally the prior week.
U.S. treasury bonds gained slightly with little changes in interest rates over the week, while both investment-grade and high yield corporate gained a percent or more as credit spreads contracted. A weaker dollar boosted developed market and emerging market dollar-denominated debt.
Commodities declined across the board slightly last week, except for precious metals, despite the weaker dollar. The price of crude oil ticked up minimally to just under $41/barrel, even as production cuts by the OPEC+ group for August were pared back, while natural gas prices fell by almost -5%.