ND&S Weekly Commentary 7.27.20 – Markets Quiver Last Week

July 27, 2020

Markets gave some back last week over renewed tensions between the US and China. The US ordered China to close its consulate in Houston which prompted Beijing to revoke the license of the US consulate general in Chengdu, China. Adding to the uncertainty last week, US jobless claims came in at 1.4 million, snapping a 15-week run of declining claims, brought on from the Covid-19 spike. Plans to reduce business restrictions continue to be delayed as a result of the recent outbreak in confirmed cases around the US.

On the week, the S&P 500 declined 0.27% while the DJIA gave back 0.74%. The NASDAQ weakened 1.33% on the week as debate grows over technology stocks and their stretched valuations. The Russell 2000 which represents small/midsized US companies also moved lower as it declined 0.38% for the week. International markets were a bright spot on the week as developed international markets (MSCI EAFE) gained 0.42% while emerging markets (MSCI EM) increased 0.57%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.41% on the week. The 10yr US Treasury ended last week at a yield of 0.59%. Gold prices continued their rapid ascent closing at $1,902 marking a 4.99% advance on the week as investors continue to seek out the safe-haven metal. Oil increased to $41.29 per barrel from $40.59 the week prior.

Economic news on the week was mixed. As mentioned above, jobless claims were a disappointing 1.4m which was a 109k increase from the week prior. It was noted on the release, “The Covid-19 virus continues to impact the number of initial claims and insured unemployment.” Housing continues to be a bright spot in the recovery as existing home sales jumped 20.7% in June. The median existing home prices have increased 3.5% year-over-year as housing inventory remains tight in a historically low-rate environment. New home sales in June also jumped 13.8%, greatly exceeding expectations. Worth noting, the Conference Board reported leading indicators increased 2.0% month-over-month in June after a 3.2% improvement in May.

Earnings season continues this week as a of number companies which includes Apple, Facebook, Amazon, Mastercard and Alphabet are scheduled to report. Earnings so far have come in better-than-feared as close to 80% of companies have reported earnings-per-share (EPS) better than analyst estimates while revenues have been generally in-line with expectations. Analysts’ forecasts were for a 10.9% decline in EPS with a 40% drop in revenues due mainly to the Covid-19 impact and restrictions.

Company results and guidance will likely drive the markets this week. We continue to recommend staying close to investment policy targets with an investment bias towards quality and safety.

“I never think of the future – it comes soon enough.” – Albert Einstein