Equity markets were mostly mixed this week, though the Nasdaq and Shanghai composite hit new highs, along with gold. Markets are continuing to attempt to divine the future of the pandemic’s direction, following the virus’ spread, it’s impact on the economy, and policy responses around the world from central banks and governments. More data will provide clarity in the coming weeks of the carnage already wreaked on the corporate profits for last quarter, as 2nd quarter earnings season begins with banks reporting first. Investors will parse through the numbers to determine which companies are holding up through the recession, and more importantly, which will thrive looking forward. Meanwhile, COVID numbers globally continue to accelerate higher.
A slew of economic data was released this week, perhaps most importantly on the employment front. First, US job openings increased significantly, as companies look to add back to their staff, particularly in construction, retail, and food services. Following this encouraging report, unemployment claims data also came in stronger than expected, with less Americans filing for unemployment benefits and those already on claims beginning to come off. Adding to the optimism, some members of the Federal Reserve board are starting to believe that unemployment could be in the high single digits by year end, far better than previously thought. Other areas of the economy also showed signs of positive momentum, with home sales surging to a rate 33% higher than last year, with mortgage rates at record lows. The earnings numbers starting next week for 2nd quarter are expected to show the worst decline in history, down over 40% for the S&P 500. Also adding to potential volatility ahead, high frequency data such as credit card usage and mobility have started to take a turn, as the virus spreads in those states that opened most aggressively. Perhaps the main issue facing the economy in the near term is the potential fiscal cliff in the coming weeks ahead. Extended unemployment benefits are set to expire at the end of July, which have propped up consumers and households significantly while many were essentially forced from their jobs. If Washington does not come to an agreement soon on a new package to support those that have been furloughed or lost their jobs in the recession, economic growth and markets are sure to take another hit in the near term. Fortunately, it appears both Congress and the White House realize the magnitude of no deal, and will likely come to an agreement to spend more than a trillion dollars to get households through the coming months ahead.
We are currently in the midst of reviewing and adjusting allocations, now that we believe US equities in the near term are mostly stuck within a range of 2,900 to 3,200 on the S&P 500. There remain opportunities in select areas of equity markets for outperformance, both domestically and internationally, and we are looking for ways to adjust exposures to capture additional upside from here. We remain confident in our bond positioning, which continues to play an important role in portfolio diversification, as well providing a capital preservation ballast and income. As always, we continue to remain extremely focused on monitoring unfolding market dynamics and reacting only when appropriate. Please feel free to call our office with any questions you may have.