September 21, 2020

Weekly Market Commentary September 14th to September 18th 2020

A $1.5 trillion compromise coronavirus stimulus package has stalled in Congress this week as the country continues to slowly reopen and go back to school. Democrats say it doesn’t do enough, Republicans say it does too much, and the White House just wants something passed to provide good news to Americans. The Federal Open Market Committee (“the Fed”) met for the last time prior to the election and, not surprisingly, kept rates unchanged. More guidance was provided on the inflation goal with the Fed clearly indicating they won’t consider raising rates until inflation exceeds 2%. Look for rates to be unchanged well into 2022 and maybe even into 2023.

In economic releases this week, we saw two regional manufacturing indices both top estimates. On Tuesday, the Empire State came in at 17.0 which walloped the 6.5 estimate. Then on Thursday, the Philly Fed came in at 15.0, besting the consensus by 2 points. Both are strong indicators that factories are truly re-opening and producing goods.

Wednesday brought the biggest release of the week – Retail Sales. It was a disappointing story as Retail Sales for August were only up 0.6% when consensus called for 1.0%. To make matters worse, July’s number was revised down from 1.2% to 0.9%. The Retail Sales Control Group, which removes more volatile sectors and is the primary feeder to GDP, faired even worse. Digging deeper into the numbers, you’ll find that there has been a slow drift from pandemic-driven sectors such as grocery stores and sporting goods into more “normal life” sectors such as clothing and restaurants…more evidence the economy may be rebounding.

Thursday brought the Weekly Initial Jobless Claims gut-punch. Last week 860,000 new applicants filed for new benefits while continuing claims came in at 12.6 million. Both numbers are lower than previous weeks, but as mentioned frequently here, both are still historically high by many multiples. We also received some housing market statistics with Housing Starts for August coming in 5% lower than July and building permits also down 2% over the same time period. Lastly, the University of Michigan Consumer Sentiment Index surprised to the upside on Friday besting even the consensus range (71.5 – 77.0) by coming in at 78.9 showing that despite the mixed bag of economic reports and markets, optimism does exist out there.

U.S. equities were volatile again this week but ultimately finished virtually flat. All three major indices were up through Wednesday, but markets retreated to finish the week. The S&P 500, Dow Jones Industrials, and NASDAQ all ended down on the week but less than 1% each. Interest rates rose but the yield curve flattened with the 2-year U.S. Treasury yield (0.13%) up more than the 10-year (0.70%).

Key economic releases next week include New and Existing Home Sales, Markit manufacturing and services PMIs, Durable Goods, and of course, Weekly Jobless Claims.