Weekly Snapshot August 08, 2020
Market Review: Week Ending 8/7/2020
Although House Democrats and Senate Republicans ended the week without an agreement to extend unemployment benefits to 30m Americans, the S&P 500 Index rose during week by 2.5% to 3351.1 At this level, the index is just 1% off its all-time high as investors continue to view virtually all reports optimistically.1 July’s Nonfarm Payrolls release last week was a good example. Investors appeared relieved that 1.8m jobs were added in July versus expectations of 1.5m as the unemployment rate fell from 11.1% to 10.2%.1 However, investors seem to care little about the slowing in the trend: 4.8m jobs were added in June and 2.4m in May, so 1.8m in July is a significant slowing from our view.1 There are also 13m less jobs today than in February and the 10.2% unemployment rate is at the highs reached in the Global Financial Crisis of 2008/09.1 All that seems to matter for now is Federal Reserve liquidity. There has been better news on the Covid-19 front however, as new cases in the US have decelerated from the surge seen in June/July following weeks of tighter restrictions in many states. But here again, cases are declining from levels 3x higher than the number of new cases seen in the spring.1 Additionally, investors also continue to view most Q2 earnings reports optimistically. For example, Walt Disney rose 11.1% last week on the news that their Disney+ streaming service now has over 60m subscribers, 4 years ahead of their own plan, rather than focus on the dismal Q2 results which saw revenue drop 42% and EPS come in at an adjusted $.08 vs. $0.79 last year.1 Investors in Disney are betting on the future and not concerned about 2020 results, not unlike the faith investors have put in stimulus from the Fed (and vaccines) to result in a sustained economic upturn in 2021. Gold traded above $2000/oz for the first time ever this week, and has risen for 6 consecutive weeks, raising the question of whether investors are looking for hedges against potential inflation (and a falling USD) given the liquidity surge and negative real interest rates. Perhaps they are also looking for outlets for the massive liquidity outside of a narrow group of large, tech stocks and low yielding fixed income. Through the close Friday, year to date results for the major indices are as follows: S&P 500 4.9%, Russell 2000 -5.2%, MSCI EAFE –7.5% and Bloomberg Barclays Aggregate Bond 7.8%.2
What We’re Watching in the Week Ahead
President Trump issued an executive order Thursday barring U.S. citizens from having transactions with TikTok, a popular app in the U.S., but whose owners are based in China. The order takes effect in 45 days. This is the latest in the escalating tensions with China that at one stage dominated the attention of investors worried about trade disruptions with the world’s second largest economy. With nearly a quarter of the S&P 500 comprised of 5 US tech giants that all depend on China to varying degrees for continued growth, this “Tech Cold War” with China bears watching for possible retaliation from China as any impact to these important market leaders could be damaging to the broader market.
Investors are counting on an extension of Federal unemployment insurance as 30m people were receiving benefits that expired on July 31st. A long-standing breakdown in talks which leads to more than a temporary gap in replacing incomes lost to Covid-related unemployment is likely to be met with selling given the impact it would have on consumer confidence and spending. President Trump signed four Executive Orders over the weekend to bypass Congress to provide relief to Americans facing high unemployment and a very uncertain back-to-school period. The Orders involved extending Federal Unemployment benefits ($400), along with measures designed to assist renters, student loan borrowers and workers with a temporary elimination of employee payroll taxes.1 It is still unclear if these measures will ultimately find their way to the recipients who need it.
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
1-Morningstar Direct 8/10/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.