Weekly Market Commentary June 29th to July 3rd 2020
In this holiday-shortened week, the major economic release was the monthly employment report. Leading the way was Nonfarm Payrolls beating estimates at 4.8 million jobs created. The Unemployment rate dropped from 13.3% to 11.1%. When dealing with such abnormal employment figures due to the Coronavirus, it’s important to note that one month’s negative figures weighs heavily on the following month’s percentage change. In other words, lots of those “newly created” jobs were folks who had been laid-off or furloughed in the past few months just getting back to work as the economy reopens. The Weekly Jobless Claims came in slightly lower than last week at 1.427 million. This is concerning as this number is starting to flatten as opposed to dropping precipitously which would indicate true employment recovery.
Also released this week, the regional business index for Chicago, called the Chicago PMI, came in at 36.6 for the month of June, beating the all-time low for May of 32.3, but not coming close to the estimate of 44.5. On the national level, the ISM Manufacturing Index was much stronger for June at 52.6, beating May’s 43.1 indicating national manufacturing is picking up steam.
The Federal Open Market Committee (“the Fed”) released minutes from its June meeting and the biggest takeaway was the need for clarification on “forward guidance” or what conditions the Fed would need to see to raise or lower rates again. So far, we’ve only seen vague statements such as keeping interest rates low for some time to achieve their 2% inflation target. Look for the Fed to address this in coming statements.
In the financial markets, the yield on the 10-Year U.S. Treasury closed higher at 0.70%. Conversely, the 2-year ended lower at 0.16% indicating a steepening (or normalizing) yield curve. Stocks rebounded nicely for the week, despite the continuing escalation of Coronavirus cases. The Dow Jones Industrials were up 3.24%, the broader S&P 500 Index rose 4.02%, and the tech-heavy NASDAQ finished the week 4.62% higher. Look for continued market volatility on the horizon as second quarter economic data and corporate earnings roll out and the virus seemingly makes a comeback.
Notable economic releases next week include ISM Non-manufacturing (services) Index on Monday, Weekly Jobless Claims and Wholesale Inventories on Thursday, and the Producer Price Index on Friday.