Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
U.S. equities finished higher for a fourth straight month in July. Treasuries rallied and the dollar was down just over 4%, helping gold surge over 10 percent and WTI crude gained 2.5 percent on the week.
Vaccine optimism overshadowed a continued uptick in coronavirus infections and the re-imposition of some mitigation measures. In addition, consensus expectations continued to revolve around a fifth coronavirus relief package that could address some of the dampened recovery momentum. The first few weeks of the second quarter earnings season were generally positive with elevated beat-rates and sequential improvement through May and June. However, second-half uncertainty is putting many investors on cautious footing. Though the Fed's late-July meeting was largely a non-event, central bank liquidity, along with vaccine optimism, continues to be very supportive of stock prices.
As part of its Operation Warp Speed program, the U.S. government announced multibillion-dollar procurement deals with a number of different companies that may be on the verge of a successful vaccine. Goldman Sachs said that the potential for a vaccine to be available in the U.S. by the end of the year may be underappreciated, however, at the same time, there was some discussion about the logistical challenges surrounding a vaccine that requires two doses, along with a growing distrust of a coronavirus vaccine.
Also making headlines, heightened concerns about a looming fiscal cliff with the late-July expiration of enhanced unemployment benefits and federal freeze on evictions. Such concerns had a fairly limited impact given that the market has long expected a fifth coronavirus relief package. However, heading into August, the White House and Democrats remained far apart in negotiations. The biggest sticking points revolved around the $600-per-week of additional unemployment benefits, liability protections and state and local government aid.
The first few weeks of the second quarter earnings season delivered very elevated beat rates – the percentage of companies beating earnings expectations. With over 60% of the S&P 500 having reported through the end of July, 84% have surpassed consensus earnings per share expectations, better than the 72% five-year average. The elevated beat rates were chalked up to the nearly 40% decline in second quarter earnings estimates, along with the faster than expected recovery from the initial lockdown phase. The biggest positive was the sequential improvement in May and June earnings highlighted by companies in a wide range of industries.
In the week ahead, the second quarter earnings season continues and we get more communication throughout the week from several FOMC officials. The U.S. employment report for the month of July comes out on Friday and is expected to show that payrolls rose for a third consecutive month. Also on the economic calendar for this week: ISM PMIs, construction spending, factory orders and the now closely-watched weekly release on jobless claims.
As always, we will be watching and reporting back to you next week. Thank you.