Economic Beat: June 29, 2020

By Claire Rubin, Private Bank Investment Strategist

U.S. equities dropped last week as investors grew more concerned about rising COVID-19 infection rates and the impact on reopening economies.

The S&P 500 Index declined 2.9% in total return for the week as Texas and Florida paused their reopening plans amid a surge in infections. Markets had largely shrugged off “second wave” concerns, but stocks were pressured Friday amid signs that states in the South and Southwest may not be able to avoid rolling back economic activity to slow the spread. Confirmed global COVID-19 cases surpassed 10 million over the weekend.

Financials underperformed as the Federal Reserve capped dividends and banned stock buybacks through September. Banks had rallied briefly after five federal agencies approved a rollback of some Volcker Rule restrictions. Energy companies also trailed as West Texas Intermediate (WTI) crude ended the week down 4.0%. The 10-year U.S. Treasury yield fell five basis points for the week, to close Friday at 0.64%.

Tensions between the U.S. and China continue to simmer. White House advisor Peter Navarro was quoted early in the week saying the phase one trade deal was “over,” though he quickly noted it was taken out of context and President Trump said the deal was “fully intact.” Separately, the Pentagon released a list of 20 companies that it says are controlled by China’s military, implying potential further sanctions.

Market participants also reacted to some notable U.S. economic releases. Housing data was mixed, with existing home sales falling more than expected in May, while new home sales beat expectations. Durable goods orders jumped by the most since July 2014, following a steep decline in the prior month. Core capital goods orders, a proxy for capital expenditures that excludes aircraft and military hardware, increased by more than twice what economists had expected. The rebound signals a gradual recovery within the manufacturing sector. Consumer spending rose by a record in May, jumping 8.2% from the prior month, after falling by a record in April. Still, the reading missed estimates for a larger increase. Incomes fell 4.2% after a gain in April that was largely driven by stimulus payments. The report from the Commerce Department noted that relief payments continued in May, but to a lesser extent than in April. The Bureau of Economic Analysis confirmed in its third estimate that the U.S. economy contracted by 5.0% in the first quarter, as expected.

In the week ahead, governments around the world continue to gradually ease virus-related lockdowns and travel restrictions, while working to control any resurgence in cases. The Federal Reserve releases minutes from its latest policy meeting, while the European Union and the United Kingdom resume Brexit negotiations. Russians will vote on changes to their constitution, which if approved would allow Vladimir Putin to remain in power until 2036.

Corporate earnings releases are light this week, but the economic calendar is robust, even in the short week for U.S. markets. Key releases include the Conference Board’s consumer confidence index, the Institute for Supply Management’s Purchasing Manager Indices and the Bureau of Labor Statistics employment situation report for June.