Market Monitor: July 16, 2020, Update

Headlines and Highlights
  • Recovery encounters more snags: A spike in coronavirus cases in much of the nation caused more reopenings to be rolled back, increasing the likelihood the recovery will take longer than expected. The new economic disruptions have occurred across the Sun Belt and beyond, including the three most populous states – California, Texas and Florida – along with Arizona. The resurgence in cases complicates the on-time reopening of schools, which could further hinder the return of workers and delay productivity gains.
  • Global activity on the rise amid challenges: More evidence emerged of the pickup in global economic activity following the profound drop sustained in the second quarter. Retail sales, industrial production and global trade have rebounded, although high unemployment and fears of a second major wave of infections keeps outlooks cautious. “We are not out of the woods yet,” said Kristalina Georgieva, managing director of the International Monetary Fund.
  • Tech stocks lift S&P back even for 2020. The Standard & Poor’s 500 Index edged back to level for the year, counting dividends, at mid-month on the strength of a handful of giant growth stocks that have thrived in the pandemic. Most stock indexes remain negative for the year because they lack exposure to the small group of large tech stocks that are outperforming.
Chart of Interest

market monitor

Handful of mega caps dominate: The 10 top contributors to S&P 500 returns in 2020 (factoring in market weight) added about 10% through July 14; the other stocks have lost a like amount.

Sources: Morningstar, Altair Advisers
Key Takeaways
  • The economic recovery has lost some momentum because of restrictions reimposed amid a surge in COVID-19 cases but is still proceeding. Recent data show mixed results: Retail sales, the housing market and manufacturing all are rebounding while consumer confidence, restaurant bookings and foot traffic to businesses in virus hotspots have waned. Jobless claims continue to trend lower but the coronavirus’ resurgence threatens the pace of the labor market recovery.
  • Stocks have settled into a narrow trading range since early June following their 2½-month surge. We believe they are unlikely to break significantly above the current level until there is more evidence of economic and earnings improvement as we enter the second half of the year.
  • Emerging-markets stocks have rallied recently thanks largely to strong performance in China, which now makes up 40% of the iShares MSCI Emerging Markets ETF, but remain negative for 2020 and still trail U.S. stocks. The index, down 32% for the year at its low point in late March, has risen 15% since May and is the top-performing asset class during that period.
  • The dollar has continued to weaken, falling 6% against a basket of other leading currencies from its March peak to go slightly negative for the year. A falling dollar tends to lift risk assets for U.S. investors, especially developed international and emerging-market stocks and U.S. companies with significant foreign sales.
  • The personal saving rate has soared to 23% from under 8% at the start of 2020 as Americans exercise greater financial caution in the COVID-19 era. Such frugality could make for a slower recovery while the pandemic persists, since consumer spending accounts for two-thirds of GDP, but shows households are better-equipped to deal with any subsequent setback to the economy.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice