|SMALL CAPS HAVE A BIG WEEK AS NASDAQ TAKES A BREATHER AND 2Q EARNINGS SEASON KICKS OFF WITH THE BIG BANKS
Weekly Market Update — July 20, 2020
|Weekly Market Performance
*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
|Small Caps Have Big Week as NASDAQ Retreats Slightly
Markets were mostly up again this week, as the smaller–cap indices reversed course and outpaced their larger–cap counterparts and shrunk the performance gap YTD. While NASDAQ declined on the week, it still boasts a remarkable YTD gain of over 17% and the S&P 500 is a whisper away from being in positive territory for the year. The smaller-cap Russell 2000 has a long way to go until it breaks into green territory.
Although the news cycle continues to be dominated by COVID–19 and the 2020 Presidential race, seemingly lost in all that news is that the economy is continuing to turn in positive data and the trends are making it increasingly more difficult to argue that a recovery is not underway. Whether this will be a slow, gradual recovery that takes years or a faster V–shaped recovery is anyone’s guess. But the forward-looking stock markets, and the economic data of late, seem to indicate that a recovery is indeed happening.
This past week brought data that suggested inflation was not as worrisome as the CPI increased modestly after three successive monthly declines. And when we add on current unemployment numbers, there is reason to believe that inflation is not on page one of the stock market’s worry list.
On piece of great news, taken with a grain of salt given extraordinarily high unemployment numbers, was this nugget buried in the press release from the U.S. Bureau of Labor Statistics on Friday morning:
“Nonfarm payroll employment increased in all 50 states and the District of Columbia in June 2020.”
More good news on the week included:
|Inflation Appears Less of a Worry
The most widely followed indicator of inflation is the Consumer Price Index and it is defined as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
On Tuesday, the U.S. Bureau of Labor Statistics released the following:
The fact that CPI rose in June is important because it had declined for each of the previous three months – the first three–month decline in over 60 years. Yes, June’s increase was the largest increase in almost 8 years, but that is not surprising as businesses reopened and consumers spent more money.
|Retail Sales Jump Again
On Wednesday, the U.S. Census Bureau announced the following advance estimates of U.S. retail and food services sales for June 2020:
“Advance estimates of U.S. retail and food services sales for June 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $524.3 billion, an increase of 7.5 percent ( 0.5 percent) from the previous month, and 1.1 percent ( 0.7 percent) above June 2019. Total sales for the April 2020 through June 2020 period were down 8.1 percent ( 0.5 percent) from the same period a year ago. The April 2020 to May 2020 percent change was revised from up 17.7 percent ( 0.5 percent) to up 18.2 percent ( 0.3 percent).
Retail trade sales were up 6.4 percent ( 0.5 percent) from May 2020, and 5.0 percent ( 0.7 percent) above last year. Nonstore retailers were up 23.5 percent ( 1.4 percent) from June 2019, while building material and garden equipment and supplies dealers were up 17.3 percent ( 2.1 percent) from last year. ”
|Earnings Season Kicks Off
As of Friday, only a handful of companies had reported earnings for the second quarter and the results were somewhat mixed. Whether the results are better or worse more or less depends on your perspective and expectations.
But research firm FactSet reported that of the 9% of S&P 500 companies that have reported as of Friday, the following was observed: