Markets “In a Nutshell” for August 5, 2020
Investment Week at a Glance
Stocks were mixed last week. The Dow Jones Industrial average dropped 0.16% but the S&P 500 was up 1.7%. The New York Stock Exchange Composite (2,000 stocks) rose 0.03%. The “average investor’s index” (Value Line index) was up 0.47%. Foreign stocks (EAFE index) were down 3.4%. Bond yields dropped (bond prices up) as the 10-year Treasury ended at 0.53%. (Sources: Barron’s, Wall Street Journal)
2nd Quarter GDP Not Pretty, But Economy Is Rebounding
The U.S. Commerce Dept reported an annualized drop of 32.9% in economic activity during the COVID 19 second quarter shutdown. The drop in economic activity was the largest on record but already we are seeing rebounding economic activity as the economy reopens. Car sales, home sales, and consumer spending have all seen record increases since the shutdown lows in April. The unknowns we, as investment advisors, are keeping our eyes on are how sustainable will the economic rebound be and will the economy take longer to get back to pre-COVID highs.
More Government Aid Coming
More government money is coming. Democrats and Republicans are negotiating through a variety of issues including the extension of the $600 a week unemployment benefit (which expired 7/31). The aid will be at least $1 trillion as the republican proposal is for $1 trillion while the democrat proposal was for $3 trillion. Whatever ends up being passed should give a short term boost to the economy but will tack on additional debt to the already bloated fiscal deficit (which is projected to be at least $3.7 trillion for fiscal 2020). The debt issue is a tough one as the COVID crisis has led to emergency govt. borrowing and spending but the debt will burden future generations. (Sources: CNBC, Brookings Institute)
Barron’s sees silver as undervalued, even after silver prices hit their highest level since 2013. Based on the current silver/gold price ratio (the number of ounces of silver it takes to buy an ounce of gold) of 80, silver prices may have more room to rise (relative to gold) as the long term silver/gold price ratio is 60. This implies a move from $24 to $32 an ounce for silver.
According to the Congressional Budget Office (CBO) every $1 the IRS spends on “examinations and collections” results in how much extra tax revenue?
Have a Great Week!