Market Commentary for the week ending August 15th, 2020
- The S&P 500 flirted with making a new all-time high but missed it be a fraction of a percent.
- Bonds suffered their biggest loss since March on positive economic reports.
- Retail sales make new higher but industrial production is lagging well behind.
According to a recent Wall Street Journal article, more than 95% of Warren Buffett’s $80 billion net worth was accumulated AFTER he reach age 65! As you can see in the below table, his Berkshire Hathaway is the 6th most valuable publicly traded company. He turns 90 on August 30th.
Well…almost. Apple’s (APPL) stock climbed another +3.4% for the week putting the company’s market value at $1.965 trillion. Another gain of +1.8% will make the company the first to ever reach a market value of $2 trillion. This stock has recently extended its lead over the next closest shown in the accompanying table.
This Week’s Performance Highlights
Stocks, in particular higher risk stocks that have suffered the most from the pandemic, moved higher this week while bonds suffered one of the biggest losses in months. Helping fuel investor enthusiasm was stronger than expected economic data but there are concerns that the strength may not continue with unemployment benefits sharply reduced at the end of July when the Federal government’s subsidies ended.
Large U.S. stocks inched higher once again with the S&P 500 gaining +0.7% for the week. Twice during the week the index reached a new all-time high intraday but was unable to close above its February 19th record as illustrated in the accompanying graph. Although the Dow Jones Industrial Average had a better week gaining +1.8%, it is still -5.5% below its record high while the NASDAQ Composite lagged this week up just +0.1% but has been in record territory for more than 2 months.
- Small U.S. stocks were also higher but lost a little of their recent momentum gaining +0.6%. We’ve seen a recent surge in these stocks but only time will tell if this continues or if they revert to lagging behind large stocks as they have for multiple years now.
High risk COVID-19 stocks, those that have been punished the most since the start of the pandemic, generally had a strong week with some of the biggest winners, including cruise line and casinos, shown in the below table.
- International markets outpaced the U.S. markets this week with developed country stocks leading the way higher up an average of +1.8%. The biggest winner was Japan gaining +3.3% while the Eurozone lagged behind but still posted a strong gain of +1.6%.
- Emerging markets were also higher gaining +0.8%. One of the biggest, Hong Kong, jumped +4.6% for the week but is still down year-to-date by -6.6%.
- Bond prices fell by -1.15% this week, the biggest drop since mid-March during the height of the market volatility and selloff. Pushing prices down was stronger than expected economic data suggesting interest rates may not need to remain low indefinitely. At the close of the week the yield on the 10-Year U.S. Treasury Bond was at 0.707% compared to just below 0.510% less than two weeks ago.
Real estate stocks did not participate in the week’s rally losing -1.5%. This tends to be the case when bond prices move lower as they did this week.
- The shine came off of gold this week with it falling from its record highs down -4.3% for the week. In spite of this drop, it is still higher for the year by +27.7%.
- Commodities where higher by +1.1% but remain lower in 2020 by -32.0%.
Retails sales reached a new all-time record high, eclipsing the highs early in the year pre-COVID-19, up +1.2% in July. This one economic report was a big weaker than expected and a slowdown from the month before but shows consumers are clearly in spending mode. Arguably the $600 a week benefit paid to unemployed per the Cares Act has been positive but with it having ended and no signs the Congress will come together soon to pass an additional spending bill, number could be weaker going forward. See a graph of retail sales in this July blog.
New jobless claims fell to 963,000 in the most recent week, the first time it has been below 1 million since the start of the pandemic. This was meaningfully better than economists had expected and a continued improvement from the week before. Furthermore, the total number of unemployed receiving benefits fell to 28.3 million from 31.3 million. These numbers are still very big but improving.
Industrial Production, a measure of manufacturing output, climbed again in July up +3.0% following a revised higher +5.7% improvement the month before. Although retail sales have reached pre-pandemic highs, as the accompany graph shows, Industrial Production remains well off its high.
Source: Federal Reserve, Industrial Production and Capacity Utilization – Index Total
Inflation numbers suggest demand is strong with both the Consumer Price Index (CPI), retail prices, and the Produce Price Index (PPI), wholesale prices, both risking +0.6% in July. These price hikes were more than expected and puts the CPI year-over-year gain at 1.0% while wholesale prices are still negative for the past 12 months.
Upcoming Economic Reports
- Housing Starts
- Existing Home Sales
- Jobless Claims
- ISM Manufacturing Index