Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
U.S. equities snapped a three-week winning streak last week, falling amid investor concerns about rising tensions between the U.S. and China, along with continued worries about the economic recovery.
The S&P 500 Index ended the week 0.3% lower, while the blue-chip Dow Jones Industrial Average lost 0.7% in total return. The tech-heavy Nasdaq 100 Index dropped more than 1% for the week and recorded back-to-back daily losses on Thursday and Friday for the first time in 49 days. Earnings season continued, with just over 25% of the S&P 500 Index now having reported, according to FactSet. About 81% of companies that have reported beat consensus earnings estimates.
The U.S. dollar slid to its weakest level since January versus a basket of major peers. Treasuries were mixed and the spread between longer and shorter-dated bond yields narrowed. The 5-year U.S. Treasury yield touched an all-time low on Friday before bouncing back.
Tensions continued to escalate between the world’s two superpowers. China ordered the United States to close a consulate Friday, in retaliation to a similar move by the U.S. earlier in the week. The move came hours ahead of the U.S.’s deadline for Chinese diplomats to vacate the mission in Houston, which the State Department said had been used for spying and influence operations.
Meanwhile, investors remain wary about the ability for the U.S. economy to continue to rebound, as COVID-19 infections rose, and as some states pause or rollback reopening plans. Economic data suggest the economic recovery may already be stalling, as initial claims for unemployment benefits rose for the first time since spiking in March. However, the housing sector continues to suggest a strong recovery, with new home sales jumping more than 13% in June amid pent-up demand and low mortgage rates.
A key consideration in the outlook is the fifth COVID-19 relief package expected from Congress. Senate Republicans and the White House were unable to finalize their proposal last week, as they failed to reach consensus on key details. Talks continue in the week ahead.
Also in the week ahead, the Federal Reserve’s Federal Open Market Committee meets to set monetary policy, with a decision announcement coming Wednesday. The central bank may reveal plans to provide longer-term accommodation to the U.S. economy. Officials have signaled they expect to keep interest rates near zero through 2022. Major economic releases include durable goods orders, the Conference Board’s consumer confidence index and consumer spending. Perhaps the most closely watched report of the week will be Thursday’s advance release on second quarter gross domestic product. Economists estimate GDP shrank by 35% on an annualized basis, amid COVID-19-related shutdowns. That would be the steepest decline in records back to the 1940s.
As always, we’ll be watching and reporting back to you next week. Thank you.