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IPC Meeting Minutes 10-12-2020

10/12/2020 scott

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Economic Update 10-12-2020

  • In a light week for economic data, the ISM services index continued to show expansion, the trade deficit widened, and the improvement in jobs data decelerated.
  • Global equity markets gained across the board as hopes for further stimulus again improved. Bonds were mixed as interest rates rose, although high yield bonds gained. Commodities rose several percent in several groups, especially in energy, as hurricane-related shutdowns dampened production and supply.

 

U.S. stocks gained sharply last week, earning the best returns in about three months. This was despite sentiment taking a downward turn Tuesday as the President called an end to Congressional stimulus negotiations until after the election. This naturally disappointed many, as hopes for a robust aid package appears to be needed for pandemic-affected workers/consumers and businesses in light of a mixed recovery. Later, however, a tweet kept open the door for possible aid in more of a ‘piecemeal’ form, as did language later in the week, which alluded to an even larger stimulus plan. The differential in planned stimulus packages appears to be tightening, with the President’s figure rising from $1.6 to $1.8 tril.—compared to the already-passed $2.2 tril. House version. This apparent change in tune undoubtedly raised stock market sentiment, although odds of passage before the election remain debatable.

Every sector ended in the positive last week, led by cyclical materials and energy each up 5%—the latter helped by higher oil prices. Communications services and consumer staples fell at the back of the pack, yet were still up 2%. Real estate gained a percent, held back by higher interest rates. Small cap stocks, which have been lagging larger caps significantly this year, came in as the strongest performers. Earnings season will begin this coming week in earnest, with general expectations of a mixed picture for Q3.

Foreign developed market stocks provided returns just behind those of domestic stocks, while emerging markets fared a bit better. Sentiment in areas such as Europe remain highly correlated to global pandemic effects, and last week, by sentiment in the U.S. surrounding efforts to agree on a stimulus package. The fact that foreign markets care so much about U.S. stimulus is related to the far more ‘global’ relationship between businesses and consumers than in decades past. Essentially, any stimulus provided by major governments is seen as a boost to global consumer demand, and GDP results, which benefit all. This is despite several disappointments in economic growth numbers, as well as further lockdowns in Europe as Covid cases continue to re-escalate. Sentiment in Japan, however, was more upbeat, with chances for additional needed stimulus looking less likely. Otherwise, several more cyclical and commodity-based economies saw the strongest gains last week, including Australia, Brazil, and Mexico.

U.S. bonds fell back slightly on the week, as long-term interest rates ticked higher. Due to strength in equity markets, high yield bonds and floating rate bank loans also fared better than investment-grade debt. A weaker U.S. dollar helped foreign developed market returns, while emerging market bonds in both USD-denominated and local currency versions were each up over a percent each.

Commodities gained ground by several percent broadly last week, led by energy, although agriculture and metals prices also increased a few percent. The price of crude oil spiked by 10% to just over $40.50/barrel, with similar gains in natural gas prices, as production in the Gulf of Mexico shut down due to Hurricane Delta, and OPEC came out with an optimistic outlook for producers.

 

 

Period ending 10/9/2020

1 Week (%)

YTD (%)

DJIA

3.31

2.02

S&P 500

3.89

9.22

NASDAQ

4.57

29.99

Russell 2000

6.40

-0.80

MSCI-EAFE

2.98

-4.31

MSCI-EM

3.77

0.70

BBgBarc U.S. Aggregate

-0.17

6.55

 

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2019

1.55

1.58

1.69

1.92

2.39

10/2/2020

0.09

0.13

0.28

0.70

1.48

10/9/2020

0.10

0.16

0.34

0.79

1.58

 

 

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                             

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

 

FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT

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