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2020 Financial Markets Update

Week in Review: September 25, 2020

September 28, 2020

Recap & Commentary

US equity markets ended the week lower as an uptick in global coronavirus cases tempered optimism about the possibility of a speedy recovery and doubt set in over a stimulus deal being reached before the election. The S&P 500 posted its fourth consecutive weekly decline, the longest such streak since August 2019.

Fed Chairman Jay Powell and Treasury Secretary Steve Mnuchin testified before Congress on their respective agencies’ pandemic responses. Powell warned of the risk of slowing economic activity without additional fiscal stimulus from Congress, as high-frequency indicators show that demand for such things as air travel and restaurants remains depressed. The Fed also changed guidance to banks, encouraging them to underwrite loans based on the borrower’s pre-pandemic conditions coupled with their post-pandemic potential.

As of Saturday, the CDC had reported nearly 32M global coronavirus cases and over 985k deaths. In the US, daily coronavirus cases rose 20% from last week as the death toll hit 200k, the highest of any country in the world. Johnson and Johnson joined drug makers AstraZeneca, Pfizer, and Moderna in the race for a Covid-19 vaccine, entering Phase 3 of its single-dose vaccine trial.

Economic Bullet Points

Another week of mixed economic data was highlighted by housing data, durable goods orders and preliminary manufacturing and services PMI data.

New home sales slowed from the arguably unsustainable rate of 15% in July to just under 5% in August. Despite the slower growth, annualized sales increased to 1M for the first time since 2006. The ongoing strong demand for new homes caused supply to fall to just 3.3 months, the lowest on record dating back to 1963. Existing home sales rose 2.4%, to an annualized pace of 6.0M, the fastest since 2006. Compared to a year ago, existing home sales in August increased 10.5%. The strong demand resulted in the average house being sold in just 22 days, matching the fastest pace on record.

Durable goods orders slowed to 0.4% in August, down from 11.7% in July. However, the headline number is susceptible to large swings in aircraft orders. A better measure of core business spending, which excludes both aircraft and defense orders, rose nearly 2% in August, better than the consensus forecast, but still down from the 2.5% increase in July.

Preliminary PMI data for September showed that both the manufacturing and services sectors continued to expand in September. Compared to August, the pace of manufacturing activity increased slightly, while the pace of services activity slowed slightly.

Initial jobless claims for the week were effectively unchanged from the prior week at 870k. However, that was 30k more than expected. Continuing claims improved slightly from nearly 12.8Mto 12.6M.

Of Note

The House of Representatives passed a temporary spending bill to fund the government through December 11. The vote, which received broad bipartisan support, eliminated the possibility of a government shutdown in the run up to the Presidential election in November.

Market Indices Week of 09/25

S&P 500-0.6%
Small Caps-4.0%
Intl. Developed-4.2%
Intl. Emerging-4.4%
Commodities-3.1%
U.S. Bond Market-0.1%
10-Year Treas. Yield0.65%
US Dollar1.8%
WTI Oil ($/bl)$40
Gold ($/oz)$1,857

The Week Ahead

  • Sept Employment Report
  • ISM Manufacturing
  • Consumer Confidence
  • Consumer Sentiment
  • Pending Home Sales
  • Case-Shiller HPI
  • 2Q GDP
  • PCE Inflation
  • Personal Income & Spending

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