Hello, this is Jeff Korzenik, Chief Investment Strategist of Fifth Third Bank with the Economic Beat for the week of September 20th, 2020.
Investors experienced mixed results last week. As measured by the benchmark S&P500 Index, the U.S. stock market retreated six tenths of one percent. The financial and popular press have noted that this represents the third straight week of declines for the stock market, but the index performance does not provide the full picture of market performance. The S&P500 Index is comprised of large companies, and it is capitalization-weighted; that is, the largest components carry greater weight in influencing the index moves. Underneath the surface, last week’s performance was a rare reversal of this year’s two dominant trends whereby stocks of large companies outperformed small, and growth names outperformed value, the exact opposite of this past week’s results.
Broader measures of stocks showed gains. Small and mid-sized companies rallied, with the S&P 2500 Index of small and middle-sized public corporations delivering better than a two percent gain, foreign stock markets broadly advanced and even the index that uses the S&P500 components, but weights those companies equally, delivered a small positive return. In other markets, the dollar and bond yields were little changed on the week, while the prices of oil, gold and commodity indices moved higher.
The most significant economic event of the past week was the conclusion of the Federal Reserve Board’s Open Market Committee’s September meeting and Fed chair Jerome Powell’s post-meeting press conference. As widely anticipated, Powell outlined a significant new policy framework for our central bank, which will now permit inflation over two percent for an extended period, and appeared to tie any consequent tightening of interest rates additionally to unemployment falling below four percent. The policy had been widely telegraphed in advance, but the announcement was generally considered more dovish than expected. Of particular note during the press conference were several mentions of the potential role of prolonged low interest rates in promoting economic equality, a topic not traditionally part of these press conferences.
Economic data released during the week were generally disappointing. Retails sales and Industrial Production grew more slowly than anticipated. Housing offered a mixed picture with weather-related disruptions in the South and evidence of weakness in the multi-family housing sector, but single-family home starts were encouraging. The weekly unemployment claims data reflected significant “churn” in the labor markets as continuing claims fell more than expected as many who lost their jobs during the Pandemic returned to work, but a stubbornly high initial claims number reflected new job losses as businesses rationalized staffing amidst the continuing public health challenge.
Weekly jobless claims will again be a focus this coming week in a period otherwise few significant economic data releases. At Fifth Third, we are concerned with not only how many people are unemployed, but also how long they are unemployed. Over the coming months we will find that those people who lost their jobs in March and April and have yet to be reemployed will meet the official definition of “long-term unemployed”—that is, twenty seven weeks or more of unemployment. Historically, long-term unemployment has been a formidable barrier to reemployment and ultimately depresses labor force participation and growth.
As always, we’ll be watching, and reporting back to you next week. Thank you.