Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank.
U.S. equities finished the week higher as the tailwind of massive in place stimulus measures, vaccine optimism, and positive economic data drove markets.
Domestic equities rose last week, with the S&P 500 Index up 0.6% in total return for the week and the Dow Jones Industrial Average increasing by 1.8% in the period. Big tech took a breather last week, with the Nasdaq 100 Index up 0.1% in total return for the week. Value and Cyclicals outperformed, as both groups have leverage to positive economic momentum, modestly increasing inflation expectations, and progress on a COVID-19 vaccine. Industrials were the best performers as airlines, rails, and logistics were standouts. Energy outperformed as exploration and production names as well as oil services companies moved higher. Consumer discretionary rallied on the economic reopening theme, paced by department stores, apparel retailers, hotels, and casinos. Treasury yields were higher with the better economic news, with the 10-year U.S. Treasury yield ending the week up 13 basis points to 0.71%. West Texas Intermediate (WTI) Crude Oil gained 1.9% to end the week at $42.01 per barrel. Gold lost nearly 4.4%, snapping a nine-week winning streak. Gold ended the week at just over $1,945/ounce.
Vaccine optimism seemed to remain elevated and likely contributed to the positive market momentum last week, even with the widespread skepticism about Russia's claimed breakthrough. While seemingly pushing back against the pre-election timeline recently floated by President Trump, National Institute of Health director Collins said he remains confident that a vaccine could be proven to be safe and effective by the end of the year. Reports noted that even if a vaccine was approved by year end, availability for most Americans wouldn’t happen until spring or summer of 2021 at the earliest.
In political news, presumptive Democratic nominee Joe Biden selected Sen. Kamala Harris (D-Calif.) as his running mate. The move was largely expected and seemed to have little impact on market sentiment, though there seemed to be a bit of relief he did not tap someone more progressive. Recent polls show former VP Biden with a significant lead over President Trump. Financial markets have favored President Trump from a tax/deregulation perspective though some investors have said former VP Biden makes up for this with a dampened emphasis on tariffs.
The domestic economic calendar was busy last week. Retail sales, data from the industrial and manufacturing sectors, and jobless claims all showed improvement. Core retail sales for July beat expectations and there was an upward revision to June. Retail sales in the U.S. increased modestly in July, as the value of retail purchases increased 1.2% month-over-month after an upwardly revised 8.4% gain in June. Retail sales were up 2.7% year-over-year. Industrial production rose 3.0% month-over-month, after rising 5.7% in June. U.S. manufacturing production rose 3.4% in July, after rising 7.4% in June. Jobless claims fell below 1 million for the first time since March, beating estimates. Claims in regular state programs fell by 228,000 to 963,000 in the week ended Aug 8. Americans claiming ongoing benefits in state programs fell to 15.5 million, the lowest since early April.
In the week ahead, the Democratic National Convention begins in Milwaukee, with virtual speeches from Kamala Harris on Wednesday, and ending with Joe Biden’s nomination acceptance speech on Thursday. Housing starts and applications will be released on Wednesday. Starts are expected to have continued their rebound in July and applications are expected to increase. US Jobless claims will be released on Thursday for the week ending August 15th. And finally on Friday, data on existing home sales are released.
As always, we’ll be watching and reporting back to you next week.