August 24, 2020

Weekly Market Commentary August 17th to August 21st 2020

Weekly economic data, dominated by housing, was mostly positive. Both Building Permits and Housing Starts came in well above expectations, with starts rising 26.1% from last month to 1.496 million. Existing Home Sales rocketed 24.7% in the month to 5.86 million annualized, led by a 30.6% gain in the Northeast. A lack of inventory caused prices to rise 8.5% from last year. However, not all the news was positive. Mortgage delinquencies nearly doubled to 8.2%, even though we have not seen much in the way of foreclosures due to recent moratoriums. One leading indicator, Weekly Mortgage Applications, dropped -3.3% pressured by a Fannie Mae/Freddie Mac policy change imposing a fee of 0.5% on re-financed mortgages. The policy inspired backlash from the mortgage industry, with many accusing these federal agencies of hypocrisy at a time when the government is stimulating the economy.

Weekly Jobless Claims rose to 1.1 million, well ahead of a 920,000 survey expectation. Continuing Claims, however, decreased to 14.8 million due to positive reports in prior weeks. The Philly Fed business outlook survey came in at a 17.2 reading, slightly below the survey and prior reading, but still expansionary. While business conditions improved, factories cut orders and employment. This was countered by the Markit Manufacturing PMI coming in at a strong 53.6 reading on Friday, with the Services index expanding and beating expectations as well.

It was a less volatile week than usual in equity markets, which were buoyed by lower coronavirus case tallies and the stronger economic data. The S&P 500 Index reached record highs, further demonstrating a gulf between Wall Street and Main Street economic conditions. The index gained 0.7% on the week to finish at 3,397. The NASDAQ, powered by high-flying Apple and Tesla shares, rose 2.7% to a record 11,312.

After a big move up last week, the yield on the 10-year US Treasury fell by over 7 bps to 0.635%, while the 30-year fell 9 bps to 1.35%.

Key economic releases for next week include Consumer Confidence, New Home Sales, the Richmond Fed Manufacturing Survey, and Durable Goods orders.