Markets “In a Nutshell” for August 11, 2020
Investment Week at a Glance
Stocks finished up for the week. The Dow Jones Industrial Average was up 3.80%, the S&P 500 rose 2.45%, the New York Stock Exchange Composite (2,000 stocks) rose 2.41% and the average investors index (Value Line Index) was up 4.29%. Foreign stocks (DJ Global ex U.S.) were up 1.86%. Bond prices were lower for the week, with the 10-year U.S. Treasury ending the week 2 basis points higher at 0.57%. (Data source: Wall Street Journal)
Encouraging Jobs Data
While the absolute numbers continue to show a dismal picture of the economy, last Friday’s jobs data for July showed encouraging progress, relative to economist’s estimates, to healing a deeply scarred labor market. The report showed the unemployment rate dropped to 10.2% with 1.8 million jobs being added in the month. Thursday’s unemployment filings also trended in a better direction with a still astronomical 1 million initial employment claims and about 16 million continuing claims. Markets responded positively to both sets of news with Small Cap companies, which are inherently more dependent on U.S. economic growth and consumer health, leading the way gaining 6% on the week. While job growth has been strong in the past 3 months, the pace is inevitably going to slow before a full recovery and the next few months will be incredibly important to save as many jobs as possible before they are permanently lost. (Barron’s)
Low Rates Raise Everything
2nd Quarter earnings have come in well above expectations so far this reporting season, with 82% of companies beating analyst’s expectations, and has resulted in a resurgence in stocks since July. Also rising noticeably higher is gold, which just recently topped $2,000 an ounce for the first time ever, and theoretically would contrast the optimism being felt in stocks. One clear explanation, from a recent Barron’s article in this week’s issue, for the two markets’ dramatic gains is the low rates that have plummeted this year and are expected to stay in a similar range for years to come. Low rates give financially healthy companies, like Apple and Amazon, the ability to borrow money and fuel their aggressive growth plans at almost no cost, while for gold, however, low rates mean there’s less of an opportunity cost to holding the precious metal that provides no interest, but serves as a hedge against future inflation and is in high demand in times of uncertainty. While these two assets usually don’t rise together, the environment that has allowed them to rise doesn’t seem to be changing anytime soon and could be a look into a new longer term theme for the years to come. (Barron’s)
What percent of the S&P 500 is collectively comprised by the top 10 companies?
Have a Great Week!
3. The top 10 companies in the U.S. comprise 29% of the S&P 500 and have a collective market value of over $8 trillion (Wall Street Journal).