Weekly Investment Update - July 13, 2020Submitted by Kristen Coombs Financial Advisors on July 14th, 2020
July 13, 2020
US equity markets advanced last week with the Dow Jones Industrial Average, the S&P 500, and the NASDAQ returning 1.0%, 1.8%, and 4.0%, respectively. The markets were potentially aided by renewed discussion in Washington of an additional round of fiscal stimulus. The NASDAQ’s outperformance marked a continuation of investors’ preference for growth themes in technology, consumer discretionary, and communication services which have remained resilient or even thrived during the pandemic (e.g., Amazon, Netflix, Zoom). These sectors returned 2.7%, 4.8%, and 4.7% during the week, whereas more cyclical sectors such as energy and industrials lost 4.7% and 1.4%, respectively, potentially a sign that investors are skeptical of a broad economic recovery occurring any time soon.
The week was marred by record numbers of new COVID-19 cases in southern states and resulting concerns that economic reopening plans may be slowed or even need to be reversed. With little more than a month until schools, colleges, and universities are set to reopen to students after nearly six months, late August and September will be very important barometers for the for the broad economy. Another semester of remote learning will likely create a challenge to the productivity of parents balancing increased responsibilities at home with employers wishing to return to “normal”. America’s higher education institutions also face significant headwinds in their attempts to reopen to students. Increasing costs related to virus tracking and prevention juxtaposed with lower revenue from tuition pressure and canceled auxiliary events may represent the best-case scenario for many schools and their employees, while another semester of remote learning and the potential for significant declines in enrollment and room and board revenue are still a real possibility.
Earnings season begins this week with large financial companies like JPMorgan and Bank of America reporting second quarter results. According to FactSet, S&P 500 earnings are expected to decline 44% in the second quarter compared to the same quarter in 2019, which would represent the largest year-over-year decline since 2008. The chart below blends actual results with analysts’ consensus expectations and highlights the significant decline in earnings outlook since March 31 across sectors.
Source: Bloomberg, FactSet (Total Returns shown gross of fees) As of July 10, 2020
Past performance may not be representative of future results. All investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this market update may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data. Please contact your Financial Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.
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Index Definitions (Source: Morningstar):
Barclays Aggregate Bond Index - The index measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. It rolls up into other Barclays flagship indices, such as the multicurrency Global Aggregate Index and the U.S. Universal Index, which includes high yield and emerging markets debt.
MSCI All-Country World Index - The index measures the performance of the large and mid-cap segments of all country markets. It is free float adjusted market-capitalization weighted.
S&P 500 Index - The index measures the performance of 500 widely held stocks in US equity market. Standard and Poor's chooses member companies for the index based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid-1989, this composition has been more flexible and the number of issues in each sector has varied. It is market capitalization-weighted.
Russell 2000 Index - The index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.
MSCI EAFE Index - The index measures the performance of the large and mid-cap segments of developed markets, excluding the US & Canada equity securities. It is free float-adjusted market-capitalization weighted.
MSCI Emerging Markets Index - The index measures the performance of the large and mid cap segments of emerging market equity securities. It is free float-adjusted market-capitalization weighted.
NASDAQ Composite Index - The index measures the performance of all domestic and international based common type stocks listed on the NASDAQ Stock Market. It includes common stocks, ordinary shares, ADRs, shares of beneficial interest or limited partnership interests and tracking stocks. The index is market capitalization-weighted.
Dow Jones Industrial Average Index - The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
ICE BofAML US High Yield Index - The index measures the performance of short-term US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have at least 18 months to final maturity at the time of issuance, at least one-year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. It is capitalization-weighted.
ICE BofAML 3-Month Deposit - The index measures the performance of a synthetic asset paying Libor to a stated maturity. It is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that days fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument.