October 12, 2020

Weekly Market Commentary October 5th to October 9th 2020

It was a very light week of economic releases with the Fed’s meeting minutes and members’ speeches getting perhaps more airtime than they would have in a busier data cycle. The Fed’s main directive for the economy is to help attain full employment and to keep inflation in check through the use of monetary policy. One of the tools they have at their disposal is adjusting short term interest rates. As you know from reading this update, the Fed has already pushed rates about as low as possible without going negative. At this time, they are not interested in lowering them any further so the other tool they have employed is loading their balance sheet with government debt. Now they are at a point where they believe the best thing for the economy is fiscal policy or the release of stimulus funds from Congress and the White House. In his speech this week, Fed Chair Powell came out and suggested that without further government stimulus, the risk of continuing the recession into 2021 grows by the day. As the Democrats, Republicans, and the White House argue over no new stimulus vs. a skinny package vs. the full bail-out, the folks hit hardest by the continued pandemic shutdown grow more and more at risk for missing mortgage payments, getting evicted, or losing their jobs and/or businesses. The general consensus is that more stimulus is needed, but in this hypersensitive political atmosphere we’re in, no one can seem to agree on which package is appropriate. This is likely to be THE big economic story through the remainder of the year.

On Monday, the ISM Services Index, a leading measure of the services sector, beat expectations and came in well into expansionary territory at 57.8%. On Thursday, we got the weekly drubbing of Initial Jobless Claims which, although slightly down from last week, again came in at over 800,000. Continuing Claims, while also down from last week, came in at approximately 11 million. We’ve seen these two figures stagnate over the past couple of months which is an indication that perhaps the recovery itself may be slowing.

In financial markets, equities continued the upward momentum swing from last week. The S&P 500 rose by 3.85% to finish at 3,348, the Dow Jones Industrials Average was up 3.27%, and the tech-heavy NASDAQ also rose 4.56%.

In the fixed income markets, U.S. Treasuries fell across the board as the yield curve steepened. The two-year finished the week at 0.16%, the 10-year at 0.78%, and the 30-year yield at 1.57%.

Next week’s economic releases include CPI and PPI inflation data, Weekly Jobless Claims, regional manufacturing indices, Retail Sales, Industrial Production, and Capacity Utilization.