Weekly Market Digest: Does This Week Represent the New Normal for Capital Markets?

Stocks pushed higher on mixed economic, stimulus and COVID-19 news. The S&P 500 flirted with its all-time high from February but failed to push past it. The US registered its first week with new jobless claims under a million since March while retail spending in July passed pre-pandemic levels. Congress bickered about a stimulus bill and adjourned until September with little sign of being close to an agreement, though both sides still say they want a new package quickly.

Weekly Returns

S&P 500: 3,373(+0.6%)
FTSE All-World ex-US (VEU): (+1.5%)
US 10 Year Treasury Yield: 0.71% (+0.14%)
Gold: $1,944 (-4.3%)
EUR/USD: $1.184 (+0.4%)

Major Events

• Monday – The number of air travelers for the prior week hit its highest since mid-March but remains 70% lower than a year ago.
• Monday – The Fed reported that it continued to buy both blue chip and junk bonds in July.
• Tuesday – Russia registered the first COVID-19 vaccine, generating skepticism about its efficacy and safety.
• Wednesday – The Consumer Price Index rose 0.6% in July, ahead of most expectations.
• Wednesday – House Speaker Pelosi said Democrats and the Trump administration are “miles apart” on stimulus negotiations.
• Thursday – Weekly unemployment claims dropped below one million for the first time since March. The jobless rate is now 10.2%.
• Thursday – The number of apartments for rent in Manhattan more than doubled from a year ago to an all-time high, with average rental rates dropping 10%.
• Thursday – White House Economic Advisor Larry Kudlow said the administration is unhappy with China and suggested there may be “export restrictions.”

Our Take

Perhaps this week was representative of the new normal for capital markets in the summer of 2020 and the COVID-19 era. Potential trillion-dollar stimulus negotiations were carried on with little progress, new jobless claims were “only” 963,000, news of a Russian vaccine was largely ridiculed rather than cheered, and there was a disturbing uptick of cases in Italy. S&P 500 earnings appear headed for a decline of roughly a third, which would be the worst since 2009, but also ahead of most expectations heading into the quarter.

Amidst it all, stock prices were relatively calm with U.S. stocks up 1.3% on Wednesday but otherwise mostly flattish. Bucking trends for most of the year, value stocks modestly outperformed growth, and international led the U.S. On the bond side, long-dated Treasuries declined as a large new supply of bonds were released into the market. It could be investors are starting to look past the shock of quarantines and take a more holistic look at what the economy of the future may look like.