Market Update - June 29, 2020Submitted by Jodi Vleck , Beta Wealth Group on June 29th, 2020
For the week ended June 27th, U.S. equities fluctuated with news regarding growing Covid infection rates/cases across newly re-opened regions around the US in states such as Florida/Arizona/Texas and potential proposed $3 billion in tariffs against several European nations dragging investor sentiment, which was buoyed in part by talks of additional planned government stimulus and the relaxation by the FDIC of certain pre-GFC Volcker rules. While the Covid news led both economists and strategists to question the viability of reinvoking large-scale shutdowns such as those implemented in March, the timeline for a ‘back to normal’ economy appears to have lengthened as witnessed by the International Monetary Fund downgrading its estimates for 2020 global growth to -4.9%, the worst in the post-WWII era.
While all domestic sectors declined last week, the technology and consumer sectors fared best with minimal losses, while the laggards were the energy, financials, and communications sectors which fell over 5%. While the Energy sector equities have been naturally closely tied to the spot price of crude oil, financials were affected by disappointing stress test results for several banks and news regarding the potential capping/suspension of dividends and share buybacks. On the economic front, higher-than-expected durable goods orders were offset by mixed housing and jobless claims data.
Foreign equities fared better than U.S. equities, with emerging markets generally flat, European markets posting small declines and Japanese markets declining notably. On the economic front, a substantial European manufacturing PMI improvement to nearly expansionary levels provided a sizable sentiment boost, as did announcements of upcoming business re-openings in Britain by early July. Reopenings across several Chinese industries to foreign investment supported strength in emerging markets indices, and the nation’s virus response has been far more effective than most major countries elsewhere on the globe.
U.S. government bonds experienced gains last week, as investors sought safe havens away from equity markets. Corporate bonds fared relatively less well, with flattish returns for investment-grade debt, and notable declines across high yield and floating rate bank loans. Foreign developed market debt also fared well due to ‘risk off’ investment flows, while emerging market bonds experienced flattish returns.