Market Update: 7-3-2020

July 3rd, 2020

 
Just a quick update on the market and the economy as we head into July 4th weekend. The coronavirus continues to pick up steam in certain areas of the country as daily new cases in the US are higher than ever. So be safe out there (but have some fun too).
 

Stocks and the Market

Market Snapshot

Stocks rebounded this week, with all three major indices up several percent: Dow up 3.25%, S&P 500 up 4.02%, Nasdaq up 4.62%. That brings the Dow within 13% of it’s February peak, the S&P 500 within 8%, and the Nasdaq is now nearly 4% ABOVE it’s pre-coronavirus peak. Hard to believe how far we’ve come since March. But you never know what the future holds, especially with the stock market.
 
Interest rates remain near all-time lows with the 10-year Treasury at 0.68% yesterday.
 
And at $40/barrel, oil remains well below average for recent years, but has increased significantly since futures went negative (yes, negative) just over two months ago.
 

Of Note – The Banks and The Fed

After undergoing the Federal Reserve’s latest rounds of “stress tests” (a test designed to determine the financial health of a bank), Wells Fargo announced they will be cutting their dividend next quarter. Other banks, including JP Morgan, Bank of America, Citi, and Goldman Sachs will not be cutting.

Takeaway: If you’re a Wells Fargo customer, no need to panic yet. Cutting the dividend, while typically considered a bad sign for investors, is a measure taken to ensure the bank retains enough of it’s earnings to keep the business stable. And of course your deposits are protected by FDIC insurance anyway.
 

The Economy

Employment

The jobs report came in strong this week, with nonfarm payrolls increasing by 4.8 million for the month of June, and the unemployment rate dropping to 11.1%.
 
Both numbers were better than predicted by economists.
 
The 4.8 million jump represents the largest monhtly increase we’ve ever seen (coming off of large decreases earlier) and the 11.1% unemployment rate is the lowest since the virus hit. TBD how these will be impacted going forward as some states scale back reopenings due to increasing infection rates.
 

Consumer Spending

Consumer spending rose 8.2% in May after falling 6.6% in March and 12.6% in April, suggesting consumers have bounced back to some degree. (Remember though, a 12% drop will need more than a 12% increase to get back to level). Similar to the employment numbers, TBD on how the current state of the virus will impact spending going forward. Slower reopenings or more shut downs could slow the progress we’ve seen so far.
 

New Round of Stimulus

Congress is officially in recess now (no, not playground recess). And they won’t be back until July 20th. So don’t expect a second stimulus check anytime soon. When they return, discussions will continue regarding a possible new round of stimulus.
 
While the Democrat controlled House of Representatives already passed a $3 trillion proposal, the details have been hotly debated and a final bill/law would likely look considerably different from the current House version. And support for a new round remains mixed. Long story short, it’s still up in the air.
 
 
That’s it for now. Happy 4th!
 

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