Performance for Week Ending 8/14/2020:
The Dow Jones Industrial Average (Dow) gained 1.81%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.61%, the Standard & Poor’s 500 Index (S&P 500) finished up 0.64% and the Nasdaq Composite Index (NASDAQ) tacked on 0.08%. Sector breadth was positive with 8 of the 11 of the S&P sector groups closing higher. The Industrials (+3.10%) sector was the best performer followed by Energy (+2.28%) and Consumer Discretionary (+1.56%).
||Closing Price 8/14/2020
||Percentage Change for Week Ending 8/14/2020
||Year-to-Date Percentage Change Through 8/14/2020
*See below for Index Definitions
MARKET OBSERVATIONS: 8/10/20 – 8/14/20
The major market indices finished the week higher with the S&P 500 now gaining in six of the last seven weeks. The S&P finished just shy of it’s all time high (3386.15) reached on February 19 after gaining over 50 percent from the closing lows on March 23. Pushing the market higher were signs the economic rebound remains intact and the labor market continues to heal. On Thursday, weekly jobless claims in the week ended August 8 fell by 228K to 963K, the first reading below 1 million since mid-March. Continuing claims declined to 15.5 million from 16.1 million in the prior week, the lowest level since early-April and well off the nearly 25 million peak reach on May 8. Investors shrugged off the dimming prospects for a quick turnaround in rolling out a new fiscal stimulus package. Lawmakers are now out on summer recess and are not expected to return until after Labor Day. In light of it being an election year, the markets resiliency suggests that investors are expecting some sort of compromise to emerge in the weeks ahead.
Market View: Following the strong gains since the bottomed reached on March 23, it wouldn’t be surprising to see a period of consolidation develop in the weeks ahead. Historically the late-August through early-September period has been a seasonally weak time for the markets due to a lack of liquidity, which tends to result in elevated levels of volatility, often with a downward bias. Since the March lows, the S&P 500 has had several pullbacks that have ranged from 4 to 7 percent, a level that seems to be the sweet spot to draw the ‘Buy the Dip’ crowd back into the market. At the end of the day, the amount of stimulus being pumped into the economy should continue to act as a safety net under the market, and if there is one lesson learned over the past decade, it’s you shouldn’t “Fight the Fed.”
If a cooling off period were to develop in the weeks ahead, we would suggest using the pullback to selectively add to equity positions. The economic situation should continue to get “less bad” and earnings expectations have started to stabilize. The healthcare system seems to be better prepared for the second wave of new cases and paradoxically, the market knows that the worst things get, the more likely the Federal Reserve and policymakers will inject additional stimulus into the economy. While nothing moves in a straight line, we continue to believe the return profile over the next 12 – 24 months should remain asymmetrical, with an upward bias.
The Week Ahead: Overall it will be a relatively quiet week in terms of market moving data as we are about to enter into the belly of the summer doldrums. On the data front, reports of interest include; the August Empire State manufacturing survey, July housing starts, the August Philly Fed Index, initial jobless claims and July existing home sales. On Wednesday, the Federal Open Market Committee will release the minutes of its August meeting on Wednesday. Nearly 20 members of the S&P 500 index will report quarterly earnings, with a good portion of them coming from the retailing sector.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
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