Markets “In a Nutshell” for August 18, 2020
Investment Week at a Glance
Stocks finished up for the week. The Dow Jones Industrial Average was up 1.81%, the S&P 500 rose 0.64%, the New York Stock Exchange Composite (2,000 stocks) rose 1.07% and the average investors index (Value Line Index) was up 1.57%. Foreign stocks (DJ Global ex U.S.) were up 1.69%. Bond prices were lower for the week, with the 10-year U.S. Treasury ending the week 14 basis points higher at 0.71%. (Data source: Wall Street Journal)
Stocks Rise at a Slower Pace
Stocks rose for the week, but at a much slower pace than in previous weeks, and were led by an unfamiliar sector to investors this year in Industrials, which are highly sensitive to economic activity. This is a positive development that can hopefully sustain itself for the sake of the economy, which, in tandem with the stock market, has been held together by the growth in the technology sector. Other, more tangible improvements, in the economy were displayed in employment data, which showed there were less than a million initial unemployment jobless claims for the first time since early days of the economic shutdown in March and another substantial decrease in continuing unemployment claims. While all of this is inherently good news, some investors see this as a lessening in the pressure on lawmakers to pass another stimulus round for individuals and businesses. Regardless of both the negative and positive outcomes of more government spending, it is unclear how much the current level of the stock market is contingent on there being another bill and could add to future volatility in stocks. (Barron’s)
Small Caps Outperform
Along with the Industrial sector, Small Cap stocks in the U.S., generally defined as a company of less than $2 billion in market value, also outperformed their Large Cap peers last week and have been up over 7% in the past 2 weeks. This is another good sign for the U.S. economy, as Small Cap companies, in general, have much less business overseas and are more dependent on the U.S. consumer and other U.S. businesses. While the growth gap between Large Cap and Small Cap companies hasn’t fully been closed by Small Caps recent outperformance, it is down to single digits after having been well over 10% in March. The strength showed by the asset class comes after the average Small Cap company has had revenues fall by 17% and profits fall by 58%, but expectations are rising rapidly and leading many analysts to believe that the outperformance is here to stay, assuming continued progression of economic growth. (Barron’s)
As interest rates of plummeted and the Federal Reserve began to purchase corporate bonds, how much newly issued corporate debt has there been so far this year?
Have a Great Week!
4. Corporations have issued just over $1.5 trillion worth of debt so far in 2020, already more than the full year record from 2017 (Barron’s).