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 seemed to focus on supportive monetary policy and some surprisingly strong economic data, shrugging off the stalemate in negotiations for another fiscal stimulus package and escalating tensions between the U.S. and China.
The S&P 500 and the Nasdaq 100 each added 2.5% in total return, while the blue-chip Dow Jones Industrial Average jumped 3.9% for the week. Earnings season continued and the percentage of companies reporting earnings above expectations remains elevated. Treasuries were weaker, amid a risk-on tone in markets, though gold continued to rip higher. The dollar strengthened modestly against major peers and West Texas Intermediate crude oil gained.
The White House and congressional Democrats remained far apart in negotiations last week, differing on the desired size and scope of the next relief package. Key sticking points include enhanced unemployment benefits and aid for state and local governments. Still, the market seemed to expect a deal to get done to avoid the fiscal cliff and President Trump announced four executive actions over the weekend amid the impasse. The orders include a temporary payroll tax deferral for some workers, continued expanded unemployment benefits, eviction protection and student loan relief.
Tensions continued to flare up between the U.S. and China, though markets largely ignored this concern as well. President Trump signed two executive orders banning U.S. residents from doing business with TikTok, WeChat or the apps’ owners, pointing to national security concerns. The administration also proposed a plan that would force Chinese companies with shares traded on U.S. stock exchanges to comply with U.S. audit requirements by 2022 or give up their listings.
Economic data provided a bright spot. The Institute for Supply Management’s manufacturing and non-manufacturing Purchasing Managers Indices both beat expectations and are comfortably above the level of 50 that indicates expansion in the sectors. Factory orders rose more than anticipated in June and durable goods orders for the month were revised upward. Weekly initial jobless claims fell much more than expected, seeing the largest improvement in almost two months.
Likely the most closely-watched report of the week was the monthly release from the Bureau of Labor Statistics (BLS) on the employment situation. Employers in the U.S. added 1.76 million workers to payrolls in July, beating estimates for a 1.48 million gain and following a 4.79 million advance in June. The unemployment rate fell to 10.2%, better than expected, though the BLS said a measurement issue could add 1% to that number. A less encouraging data point was the drop in the labor force participation rate to 61.4%.
In the week ahead, the economic release on retail sales will give insight into the strength of the consumer. Economists forecast a smaller increase for July, after a strong rebound in May and June as economies reopened. The Job Openings and Labor Turnover Survey, or JOLTS report, provides another look at the labor market, while releases on small business optimism, inflation and industrial production will also be of note.
Also in the week ahead, Democratic presidential nominee and former Vice President Joe Biden is expected to announce his choice for running mate.
As always, we’ll be watching and reporting back to you next week. Thank you.