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.

 

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