Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
U.S. equities rose last week, as investors were encouraged by COVID-19 vaccine optimism and an announcement from Federal Reserve Chair Jerome Powell on a shift to a more flexible inflation approach.
The S&P 500 Index closed at an all-time high for a sixth consecutive trading session on Friday and the Nasdaq Composite also rose to a record, with both benchmark indices up for a fifth straight week. The S&P 500 rose 3.3% for the week, while the tech-heavy Nasdaq added 3.4% and the blue-chip Dow Jones Industrial Average rose 2.6%, turning positive for the year. The yield curve, or the spread between longer and shorter-dated Treasuries, steepened, reaching its widest in two months after Powell’s speech. A steeper yield curve reflects confidence that the Fed will have a positive impact in sustaining growth and lowering any deflation risks. The U.S. dollar weakened to a two-year low.
Fed Chair Powell said Thursday that the central bank will target inflation that averages 2% over time, reflecting the Fed’s willingness to allow inflation to run higher and labor markets to run hotter by keeping interest rates lower for longer. Expectations had been building for this shift, and likely contributed to the steepening of the yield curve over the last month.
Economic releases painted a mixed picture. The Conference Board’s measure of consumer confidence dropped to a six-year low in August, suggesting a potentially bumpy economic recovery as Americans cope with high unemployment and uncertainty about future stimulus. Revisions to the second quarter gross domestic product report from the Commerce Department showed modestly smaller declines in GDP and consumer spending compared to the initial releases, though still the worst on record. The monthly report on personal income and spending released Friday beat consensus.
Housing data continued to be a bright spot amid low borrowing costs. New home sales jumped to the highest since 2006 and pending home sales surged to the highest since 2005, both better than expected. The release on durable goods orders was also upbeat. U.S. orders for durable goods rose in July by more than double the forecast and core capital goods orders, a proxy for business investment, rose slightly ahead of estimates.
President Trump formally accepted his re-nomination as the Republican candidate for the 2020 presidential election at last week’s Republican National Convention, following former Vice President Joe Biden’s acceptance of his nomination at the Democratic National Convention in the prior week.
In geopolitical news, top U.S. and Chinese trade officials reaffirmed their commitment to the phase one trade deal. The U.S. Trade Representative said both sides see progress and are committed to a successful agreement. The statement also highlighted significant increases in Chinese purchases of U.S. products.
In the week ahead, economic data include the Institute for Supply Management’s Manufacturing Purchasing Managers Index, construction spending and factory orders. Perhaps the most closely watched report of the week will be Friday’s release from the Bureau of Labor Statistics on the employment situation in the United States. Economists expect a continued rebound in jobs for August from virus-related lows, though possibly at a more moderate pace than earlier in the summer.
As always, we’ll be watching and reporting back to you. Thank you.