ND&S Weekly Commentary 8.10.20 – Second Round of Stimulus Hopes Lifts Stocks

August 10, 2020

US stocks recorded solid gains last week on hopes that another round of stimulus would be announced and as employment data showed that the economy added more jobs than expected last month. Washington continues to haggle over the amount of stimulus and its beneficiaries. Without question, fiscal and monetary stimulus have been the drivers of our economic progress and the stock market’s amazing rebound since the pandemic began. More relief is needed for businesses and consumers until Covid-19 is better under control.

The economy added 1.8 million jobs in July and unemployment fell to 10.2% from 11.1% in June, much better than expected. Despite the improved jobs report, unemployment is near its peak of 10.6% reached during the recession of 2008. With Washington unable to agree on a stimulus package, President Trump, on Saturday, preemptively used executive powers to extend unemployment benefits, provide a payroll tax holiday and other relief measures. Democrats claim foul and question the legalities of the executive orders, while Republicans declare that the Democrats are holding back the desperately needed financial relief for political gain.

The US leads the world in COVID-19 infections and deaths. Over 5 million people have been infected and the virus continues to spread. The development of vaccines and better treatments and care, offer hope that we can manage through this crisis. However, with schools and businesses reopening the fear of a second wave is a major concern.

For the week, the Dow Jones Industrial Average rose 3.8%, the S&P 500 gained 2.5% and the tech-heavy Nasdaq was up 2.5%.The Nasdaq topped the 11,000 level for the first time on Thursday. The big winner was small US companies as the Russell 2000 surged 6%. Foreign markets have been benefiting from a weakening US dollar. Developed market stocks, as measured by EAFE, increased 2% while emerging markets rose 1%. The 10 year US Treasury ended the week at a historic low yield of .57%.

There are also renewed concerns over trade with China. On Thursday, President Trump signed executive orders which in effect impose a deadline for a US company, possibly Microsoft, to purchase TikToK’s U.S. operations. China is opposed to US companies taking advantage of the situation. Our economic concerns, political instability and tensions around the globe are reflected in the market for safe-haven investments like gold. The price of gold continues to rise at $2,031/oz., the ninth consecutive week of gains.

We are surprised by the resiliency of the financial markets and are cautious about the near term. Nevertheless, a globally diversified portfolio with a bias towards dividend income, and keeping a close eye on risks, will pave the way to reasonable investment returns.

The week ahead inflation numbers will be reported on Tuesday and Wednesday, weekly unemployment claims on Thursday and retail sales, business inventories and consumer sentiment on Friday.

“The leader is one who, out of clutter, brings simplicity….and out of discord, harmony…., and out of difficulty opportunity.” —Albert Einstein