-Darren Leavitt, CFA
Global equity markets continued their ascent in August. Developed international markets increased by 4.72%, while emerging markets increased by 2.89%. The S&P rose 7.01%, the Dow gained 7.57%, the tech-heavy NASDAQ led gains with a 9.59% return, and the Russell 2000 inked a 5.5% gain. The US yield curve steepened a bit with the 10-year bond yield increasing by 15 basis points to close at 0.69% while the 2-year note yield rose three basis points to close at 0.13%. The sell-off in Treasuries came as the Federal Reserve modified their policy on inflation; the revision would allow inflation to run higher at times to average out the most recent times when inflation has been well below their mandate. Oil gained ~6% over the month, rising $2.50 to close at $42.62 a barrel. The advance in gold seen early in the summer paused as the precious metal price was little changed, losing $8.1 to close at 1978.40 an Oz.
Coronavirus infection rates subsided in the US from measures taken in July to temper its spread. Novel treatment of the virus coupled with advances in testing and a vaccine provided a positive backdrop for investor sentiment. The FDA approved the emergency use of convalescent plasma as numerous tests showed efficacy in its use as a treatment in severe COVID cases. The FDA also approved Abbot Labs’ 15-minute antigen test to add to our current testing options. Many companies continued to advance their vaccine trials, and many have shown the ability to induce an immune response. Moderna, Pfizer, and AstraZeneca are a few of the companies pursuing vaccine solutions.
On the political front, Joe Biden and Kamala Harris accepted their party’s nomination for President and Vice President. Donald Trump was also named the Republican nominee. The DNC and RNC did not cause any catalysts for the market and were seen as expected. In Washington, the administration and Congress continued to be far apart on another round of COVID-19 relief stimulus. At the heart of the relief, the package is the supplemental unemployment insurance. At the end of July, the $600 additional insurance was halted, and the unemployed now are receiving their respective state insurance. This is a meaningful amount of money given continuing unemployment claims were more than 14 million throughout August. With the Presidential election a couple of months away, it is hard to see that either side will budge, although there have been some recent overtones on breaking the stalemate.
Second-quarter earnings continued to come in better than expected in August. The above-consensus earnings results and revenue results definitely helped equity markets. It was most apparent in the technology sector, where companies just blew away the street’s expectation. Apple always stands out, and its results for the quarter pushed the company’s market capitalization through 2-trillion. Elsewhere, healthcare continued to well given the need for testing, PPE, and a vaccine developed. Energy and Real Estate lagged during the month.
On the economic front, things appeared to be getting a bit better. The assessment of economic data is, however, a challenge right now, and some of the data will continue to be distorted, given the severe shut down of the economy since early March. That said, we continued to see progress on the employment front where continuing claims continued to come down, and initial claims look to have peaked out. Manufacturing and services data continued to show expansion in August. The housing market has been a real source of strength as existing home sales, and new home sales set records.
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