Commentary provided by John Packs, Senior Investment Officer, AIG Retirement Services
Weekly Market Performance Snapshot (Week ending July 24, 2020)
- Dow Jones Industrial Average®: - 0.8%
- S&P 500® Index: - 0.3%
- NASDAQ Composite® Index: - 1.3%
- Russell 2000® Index: - 0.4%
- 10-year U.S. Treasury bond yield: 0.586%, down 3.7 basis points from 0.623% on July 17
- Best-performing sector this week: Energy, + 2.1%
- Weakest-performing sector this week: Technology, - 1.5%
Vaccine News and Earnings Move Markets
Positive news on the vaccine front helped stocks advance through the middle of the week. Despite strong earnings reports from Tesla and Microsoft, technology stocks dipped later in the week, as investors rotated out of the sector’s big gainers. This was the third consecutive week that a non-technology sector was the best performing segment of the equity markets.
- The U.S. government said it will spend nearly $2 billion to purchase a vaccine being developed by Pfizer and BioNTech. The companies reported promising results from trials earlier this month. If a vaccine is approved, the federal government would buy 100 million doses, with the option to buy 500 million more. The U.S. government previously announced a $1.2 billion deal to buy 300 million doses of a vaccine being developed by the University of Oxford and AstraZeneca. New evidence on that vaccine candidate showed that it could result in longer-lasting immunity.
- Therapeutic efforts also got a boost this week from British company Synairgen, which announced positive preliminary results. Patients who received the company’s treatment were less likely to develop a severe form of COVID-19 and more likely to recover from the disease.
- Volatility and uncertainty remain high. Investors should speak with a financial professional about how to prepare for a variety of outcomes.
Is the Recovery Stalling?
In a sign that surging virus cases could be dampening the U.S. economic recovery, weekly jobless claims rose for the first time since late March, as about 1.4 million Americans filed for initial unemployment benefits. The number of people receiving continuing claims, a data point that lags by one week, continued to move downward.
- American Airlines, Southwest Airlines, and United Airlines reported earnings this week. American and Southwest echoed recent comments from Delta Air Lines that demand in July was lighter than in June, as economic closures affected travel plans. All the carriers expect demand to remain subdued until a coronavirus vaccine or treatment is widely available.
- After holding above 0.6% since April, the yield on the 10-year U.S. Treasury bond fell below 0.6%. The lower Treasury yield indicates rising concern about weakness in economic fundamentals.
- On a positive note, sales of existing homes rose 20.7% and sales of new homes rose 13.8% in June, as buyers took advantage of historically low mortgage rates.
- The economy’s future trajectory will be influenced by Washington’s ability to reach an agreement on the next round of coronavirus relief and stimulus. The Trump Administration and Senate Republicans agreed on the outlines of approximately $1 trillion in additional spending. The plan is slated to be officially released in the coming days. Democrats have proposed spending around $3.4 trillion.
- Jobless benefits could be a sticking point in the stimulus negotiations, as members of Congress debate whether to extend the existing $600 per week bonus payment or scale it back. The current benefit expires at the end of July.
- Both parties are proposing significant funding to safely reopen schools, which will be pivotal in allowing parents to return to work and the economy to pick up pace.
Europe Reaches Agreement, China Tensions Rise
The governments of the European Union (EU) reached agreement on a coronavirus relief package that includes about $860 billion of direct aid and loans to member nations. The fiscal relief will help the hardest-hit European economies, including Italy and Spain, recover from the effects of COVID-19 without adding substantially to their debt burdens. The agreement is being hailed as a significant step toward the EU’s efforts to more closely integrate fiscal policymaking among member states.
- Tensions between China and the U.S. and its allies continued to build. The U.S. government ordered China’s Houston consulate closed, claiming that it was involved in efforts to steal U.S. intellectual property. China responded by ordering the U.S. to close its consulate in the southwestern Chinese city of Chengdu.
- The UK government suspended its extradition treaty with Hong Kong as a response to the Chinese government’s imposition of a new national security law.
- Given China’s importance in the global economy, many investors will be closely watching geopolitical developments, which could have economic and financial ramifications.