Positive Economic Data and News on COVID-19 lead to all-time highs for the S&P 500 & NASDAQ
Market Recap Week ending 8/28/2020
It is hard to believe that we are almost through August, and summer’s days are limited. It was a busy week on Wall Street that produced gains across the board for the US major averages and set new all-time highs for the S&P 500 and NASDAQ. Positive news on multiple fronts against Covid-19 put a strong bid into the markets early in the week. Federal Reserve Chairman, Jerome Powell, announced a shift in inflation policy while politicians continued to be locked in a stalemate over another stimulus package which tempered some of the enthusiasm. Economic news for the week was generally positive. For the week the S&P 500 gained 3.3%, the Dow rose 2.6% after announcing some composite membership changes, the NASDAQ once again led its peers with a 3.4% increase, and the Russell 2000 added 1.7%. The yield curve steepened on the Fed’s new position on inflation. The 2-year note yield was unchanged at 0.15% while the 10-year bond yield settled nine basis points higher to close at 0.73%. Gold rallied $27.40 to close at 1974.10 an Oz. Oil increased by $0.66 or 1.67% to close at $42.97. There were no changes to our models during the week.
FDA approval of emergency use of convalescent plasma in patients helped market sentiment early in the week. The treatment has been successful in numerous cases and is an example of how treatment has evolved over the last few months and indicates our learning curve against Covid-19 is improving. Moderna, a company that has a vaccine candidate, also boosted sentiment after results showed an immune response in a trial focused on the elderly. Additionally, the FDA announced the emergency approval of an Abbot Labs Covid-19 test that can show the presence of antigens within 15 minutes.
Markets churned over the Federal Reserve announcement that it would shift its inflation policy to one that would allow PCE inflation to run above the 2% level over time to balance out years where the inflation level has been below 2%. The announcement hit longer-tenured bonds with the 10-year bond trading as high as 0.78% in early trade on Friday before coming back into 0.73%. The news put a strong bid into Financials, which benefit from a steepening yield curve. Financials gained 4.3% for the week.
It was not too much of a surprise that Washington continued to be in a stalemate last week concerning another stimulus package. The RNC was aftermarket entertainment with much of what one might expect in rhetoric. Our CIO, David Young, penned a note regarding his market expectations for the upcoming election and laid out some of the different scenarios that will likely play out- definitely worth the read.
On the margin, economic news was positive for the week. Consumer Confidence was a bit of a disappointment but was balanced out with stronger than expected Consumer Sentiment. Personal Income and Personal Spending were better than expected, coming in at 0.4% and 1.9%, respectively. New Home Sales followed Existing Home Sales with a blowout number; it was up 13.9% month over month. Durable goods orders in August were up 11.2% versus their July reading of 3.9%. On the employment front, Initial Claims came in line at 1.006 million while Continuing Claims fell 223k to 14.535 million.
