Market Perspective for August 31, 2020

Equities were mixed on Monday, though tech and healthcare shares rallied. The Nasdaq gained 0.68 percent. The S&P 500 Index slid 0.22 percent, the Russell 2000 Index 0.53 percent and the Dow Jones Industrial Average 0.78 percent.

SPDR Healthcare (XLV) advanced 0.27 percent and SPDR Technology (XLK) 0.28 percent. SPDR S&P Biotech (XBI) rose 2.80 percent and First Trust Dow Jones Internet (FDN) 0.88 percent. Post-split Tesla (TSLA) jumped 12.61 percent and post-split Apple (AAPL) 3.17 percent. Amazon (AMZN) climbed 1.21 percent and Netflix 1.04 percent.

August manufacturing PMIs will be out on Tuesday. Flash readings showed the U.S. manufacturing sector moved well into expansion, but Europe and Japan showed signs of weakness. Investors will be looking for confirmation of these trends tomorrow.

Motor vehicle sales will be released tomorrow. In July, sales climbed to an annualized pace of 14.5 million.

Friday brings the August unemployment report. Economists predict initial claims for unemployment will fall below 1 million in the week ended August 29. Weekly claims have held around 1 million, but continuing claims have been steadily declining. Economists predict 1.3 million net increase in payrolls last month, with the unemployment rate falling to 9.8 percent.

Crude oil held steady on Monday, closing at $42.82 per barrel. SPDR Energy (XLE) slipped 2.17 percent.

The 10-year yield fell to 0.69 percent. iShares iBoxx Investment Grade Corporate Bond (LQD) rose 0.46 percent and Fidelity Corporate Bond climbed 0.41 percent on the day. iShares iBoxx High Yield Corporate Bond (HYG) dipped 0.07 percent.

Earnings season is winding down. This week’s major reports include H&R Block (HRB), Five Below (FIVE), Copart (CPRT), DocuSign (DOCU), Broadcom (AVGO), Ciena (CIEN) and Campbell’s Soup (CPB).

 

Market Perspective for August 30, 2020

The Nasdaq rallied 3.39 percent last week, the S&P 500 Index 3.26 percent, the Dow Jones Industrial Average 2.59 percent and the Russell 2000 Index 1.67 percent.

SPDR Technology (XLK) and SPDR Financials (XLF) gained 4.47 percent to 4.32 percent, respectively this week. Financials rallied as investors anticipated Federal Reserve Chairman Powell would introduce a new inflation policy at the Jackson Hole Symposium. Powell delivered, stating the Federal Reserve would allow higher inflation before raising interest rates. However, he did not say the Fed would actively pursue a policy of higher inflation, rather the Fed would be slower in the face of rising inflation.

New home sales surged to an annualized pace of 901,000 in July. This was the final housing data point for this month, topping off a string of positive data on home sales, building permits, housing starts and homebuilder confidence. As is often the case, traders used the expected good news to unload their positions. iShares U.S. Home Construction (ITB) dipped 2.28 percent.

Consumer confidence was mixed. The Conference Board’s consumer confidence survey slipped in August, though the University of Michigan’s consumer sentiment survey ticked up slightly.

The Bureau of Economic Analysis adjusted its second quarter GDP growth estimate to negative 31.7 percent, an improvement from negative 32.5 percent.

Initial claims for unemployment held at 1 million last week, but continuing claims fell 1 million.

The 10-year Treasury yield climbed to 0.73 percent on the week. It jumped from 0.65 percent to 0.75 percent after Chairman Powell spoke on Thursday. iShares 20+ year Treasury (TLT) fell 3.06 percent this week. Fidelity Corporate Bond (FCOR) fell 0.91 percent and iShares iBoxx Investment Grade Corporate Bond (LQD) slid 1.09 percent. Invesco Senior Loan (BKLN) gained 0.77 percent and iShares iBoxx High Yield Corporate Bond (HYG) climbed 0.45 percent on falling credit risk.

iShares MSCI Emerging Markets (EEM) advanced 2.88 percent and iShares MSCI EAFE (EFA) added 1.68 percent.

The committee behind the Dow Jones Industrial Average announced changes to the index. Since the index is price-weighted, Apple’s (AAPL) split will cause its weight to fall 75 percent, reducing the index’s technology exposure. The committee used the opportunity to make other changes to the index. Exxon Mobil (XOM), Pfizer (PFE) and Raytheon Technologies (RTX) are out as of Monday, August 31. Now included are Amgen (AMGN), Honeywell (HON) and Salesforce.com (CRM). Amgen and Honeywell both gained more than 6 percent on the week. Salesforce delivered strong earnings and saw its shares climb 30 percent.

 

The ETF Investor Guide for August 2020

The August Issue of the ETF Investor Guide is AVAILABLE NOW! Links to the August Data Files have been posted below. Market Perspective:  Stocks Reach All-Time Highs The Russell 2000 Index […]

Market Perspective for August 25, 2020

Apple’s (AAPL) upcoming stock split spurred a change to the Dow Jones Industrial Average. As the DJIA is a price-weighted index, companies with high stock prices have a larger share of the index. Apple is currently 12.2 percent of the index while International Business Machines (IBM) is 3.0 percent of the index, about one-fourth the weighting, because Apple is $500 per share and IBM is $125 per share. When Apple splits 4-for-1, its weighting will fall to around 3.0 percent of the index, taking nearly 10 percent of the index’s technology weighting with it.

To rectify the sector weighting within the DJIA, the committee that selects Dow components announced Exxon Mobil (XOM), Pfizer (PFE) and Raytheon Technologies (RTX) will be removed from of the index as of August 31st. Amgen (AMGN), Honeywell (HON) and Salesforce.com (CRM) will now be included. The addition of CRM will replace the lost technology exposure from Apple, while the addition of Amgen and Honeywell will “help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy.”

Shares of Exxon, Pfizer and Raytheon fell 1 to 2 percent on Tuesday morning, while Amgen, Honeywell and Salesforce.com all had gains approaching 3 percent or more. Historically, companies removed from an index have outperformed the stocks added to the index, so this might not be bad news for shareholders of the companies being removed.

The Conference Board’s consumer confidence survey for August showed an uptick in optimism. Friday will bring the final reading on the University of Michigan’s August consumer sentiment survey. New home sales for July came in at an annualized sales pace of 790,000, a new post-2008 high.

Economists predict the Bureau of Economic Analysis will increase its estimate of second-quarter GDP slightly, to negative 32.5 percent.

Federal Reserve officials are holding a virtual Jackson Hole conference this week. Central bankers from around the world attend the conference. Although not an official policy meeting, Fed officials have signaled policy shifts in the past.

Salesforce.com expects headline earnings on Tuesday. Fresh on the heels of being added to the DJIA, Analysts forecast 67 cents per share in earnings and $4.9 billion in revenue.

Shares of Medtronic (MDT) climbed more than 4 percent in early trading following its earnings announcement.

Dollar General (DG), Dick’s Sporting Goods (DKS), Tiffany’s (TIF), Dollar Tree (DLTR), Big Lots (BIG), Gap (GPS) and Nordstrom (JWN) are among the major retailers reporting this week.

Fluor (FLR), Workday (WDAY), Marvell Technology (MRVL), VMWare (VMW) and HP Inc. (HPQ) also report this week.