Concerns Over the Pace of Reopening the Economy Lead to Lower Markets
Market Recap Week ending 6/26/2020
Financial markets were lower last week in choppy trade. Concerns over the pace of reopening the economy were stoked on increases of reported infections in Arizona, Texas, and Florida. Additionally, Financials, which have been well bid over the last couple of weeks, came under pressure as results from stress tests induced the Federal Reserve to suspended stock repurchases and dividends for the third quarter. Mega-cap Technology companies were also under pressure as companies increasingly defected from Facebook and other social media advertising platforms to reassess how these companies disseminate information. For the week, the S&P 500 lost 2.9%, the Dow declined 3.1%, the NASDAQ was off 1.9%, and the Russell 2000 shed 2.8%. US Treasuries gained on the week; the 2-year yield lost three basis points to close at .16% while the 10-year yield lost six basis points to close at .64%. Gold gained just over $17 on the week to close at 1780.30 an Oz. Oil endured the second week of losses, losing 3.2% or $1.35 to close at $38.49. There were no changes to our models last week.
An increase in coronavirus infection rates across the country curbed enthusiasm over the reopening of the economy. In Florida and Texas, decisions were made to postpone opening up further and also in some areas to rollback openings. The Tri-state area announced that it would impose a 14-day quarantine on people coming to their states. The EU also announced it is considering limits on air travel between Europe and the United States. The renewed concern on the impact of these measures comes as economic data has come in a bit better than expected. New Home sales data announced during the week showed a month over month increase in sales of 16.6%. Personal Spending also beat expectations with an increase of 8.2% versus 7%. Durable goods orders increased 15.8% on a month over month basis. However, initial claims and continuing claims continued to slump. Weekly claims were down 60k but still came in at 1.480 million. Continuing claims came in at just over 19 million.
Financials received a lot of attention from the Federal Reserve last week. The first announcement from the Fed bolstered bank shares as banks were granted the ability to invest in a wider array of investment vehicles, including venture capital- this came as the central bank rolled back some of the Volker rule regulations. Later in the week, the Fed announced that due to stress tests on banks, it would for an “abundance” of caution suspend banks from repurchasing shares in buyback programs and from paying out dividends in the 3rd quarter. The news hammered the financials, which lost 5.3% on the week.
Questions on how social media companies handle the delivery of information on their respective platforms have come under renewed scrutiny. Political propaganda and posts that promote hate are at the center of the decisions being made by many companies to stop advertising on these platforms. Facebook lost 9.5% last week on news that several companies would stop advertising on its platform until there were meaningful changes in their information dissemination policy. These mega-cap technology platforms have been stalwarts in this market, and their weakness help to perpetrate last week's losses.
