Weekly Market Update - July 24

Stock Markets Drop Back As June’s New Home Sales Leap 13% and Major League Baseball Celebrates a July Opening Day

• The U.S. stock markets went red this week, although the S&P 500 came close to its preCOVID high and NASDAQ hit a new high midweek

• NASDAQ ended the week down 1.3%, followed by the DJIA’s decline of 0.8%, the Russell 2000’s drop of 0.4% and the S&P 500’s retreat of 0.3%

• The 11 S&P 500 sectors rotated all week, with Energy up over 2% and the Financials and Consumer Discretionary both up 1.3%

• Information Technology, on the other hand, had a tough week, giving back 1.5%, while Communication Services gave back more than 1%

• With earnings season in full swing, the news cycle seemed to be all COVID, all the time, with some tentatively positive news about a vaccine

• EU leaders agreed to a massive EUR 750 billion stimulus plan, while talks of another stimulus package here in the U.S. stalled out

• U.S. Treasuries were mixed with the 2-year yield ending the week unchanged at 0.14% whereas the 10-year declined to 0.58%

• Oil gained on the week as West Texas Intermediate Crude was up about 1.5% to end the week at $41.67/barrel

• Gold futures settled at their highest price ever at $1897.50/ounce

U.S. Stock Markets Red After Coming Close to Record Highs

The major U.S. stock markets ended the week painted red, but not after NASDAQ breached its all-time high and the S&P 500 came within about 3% from its all-time high from February of this year.

There was a palpable sector rotation much of the week, as Energy led the way and Information Technology was the worst of the 11 S&P 500 sectors, a marked difference to their respective past performance records. In addition, the small-cap and mid-cap names picked up steam relative to their large-cap counterparts and even the value names triumphed over the growth names for the week.

While COVID news continued to dominate, there was some good news on the vaccine front as AstraZeneca and Oxford University announced positive results in a trial involving more than 1,000 patients.

Weekly Jobless Claims Streak of 15-Weeks Snapped

This time last week, investors were taking note of the 15- week streak of declining jobless claims, although that streak was viewed in context of massive claims since mid-March. Unfortunately, that 15-week streak came to an end.

On Thursday, July 23rd, the Department of Labor released the following:

• In the week ending July 18, the advance figure for seasonally adjusted initial claims was 1,416,000, an increase of 109,000 from the previous week's revised level.

• The 4-week moving average was 1,360,250, a decrease of 16,500 from the previous week's revised average.

• The advance seasonally adjusted insured unemployment rate was 11.1 percent for the week ending July 11, a decrease of 0.7 percentage point from the previous week's revised rate.

• The 4-week moving average was 17,505,250, a decrease of 758,500 from the previous week's revised average.

Earnings Season in Full Swing

While just more than 25% of the S&P 500 companies have reported earnings results for the second quarter, the results are mixed, depending on your perspective. But research firm FactSet released their summary as of Friday and found that:

• In terms of earnings, the percentage of companies reporting actual EPS above estimates (81%) is above the five-year average

• In aggregate, companies are reporting earnings that are 11.4% above the estimates, which is also above the five-year average

• In terms of sales, the percentage of companies reporting actual sales above estimates (71%) is above the five-year average

• In aggregate, companies are reporting sales that are 3.0% above estimates, which is also above the five-year average

New Home Sales Surge 13% in June

New home sales surged in June and are even better than they were pre-COVID as the surge was much higher than consensus expectations. In fact June’s numbers are the best in over a decade.

On Friday, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following statistics for June 2020:

• Sales of new single-family houses in June 2020 were at a seasonally adjusted annual rate of 776,000

• This is 13.8% above the May rate and is 6.9% above the June 2019 rate

• The median sales price of new houses sold in June 2020 was $329,200

• The average sales price was $384,700

• The seasonally adjusted estimate of new houses for sale at the end of June represents a supply of 4.7 months

Major League Baseball’s Opening Day

Thursday, July 23rd was Opening Day for the 2020 season of Major League Baseball, the latest opening day in history. Unlike past Opening Days, only 4 teams played on Thursday, with the remainder making their Opening Days on Friday.

This year’s Opening Day will be very different, thanks to the coronavirus pandemic. Not only will there not be packed stadiums, but the season was shortened to a 60- game schedule that is more regional than national as teams play two-thirds of their games against division rivals and one-third against teams in the same divisions from the opposite league (East versus East, etc.)

For every team, as writers have written over the years, “Hope springs eternal.” This year writers might use the term “Hope summers forever” or something like that.

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Sources dol.gov , factset.com ,census.gov ,fidelity.com ,msci.com ,Nasdaq.com ,Wsj.com ,Morningstar.com