Market Perspective for July 25, 2020

The S&P 500 Index declined 0.28 percent this week, the Russell 2000 Index 0.39 percent this week. The Dow Jones Industrial Average fell 0.76 percent and the Nasdaq 1.33 percent.

SPDR Energy (XLE) advanced 2.21 percent on the week, aided by crude oil holding steady above $40 per barrel. SPDR Financial (XLF) added 1.29 percent, SPDR Consumer Discretionary (XLY) 1.29 percent and SPDR Consumer Staples (XLP) 0.89 percent.

Existing home sales climbed from an annualized pace of 3.91 million in May to 4.72 million in June, slightly missing expectations. New homes sales also jumped from May and beat expectations, hitting an annualized pace of 776,000. iShares U.S. Home Construction (ITB) rallied 3.96 percent on the week.

Flash PMIs from Markit showed the manufacturing and service sectors improved in July. This indicates that while some states have reversed openings in the face of rising coronavirus cases, the impact on the economy may be limited.

Initial claims for unemployment rose to 1.42 million for the week ending July 18, in line with expectations. Continuing claims declined at the state level, from 17.3 million to 16.2 million, but the number of people claiming federal and state benefits only decreased by 0.2 million, to 31.8 million. Anecdotal evidence from businesses says many workers may be voluntarily unemployed. Congress is currently haggling over a reduction to the extra federal benefits.

The 10-year Treasury yield fell to 0.59 percent this week. Long-term government bonds performed well as iShares 20+ Year Treasury (TLT) gained 1.81 percent. iShares iBoxx High Yield Corporate Bond (HYG) rallied 1.32 percent as credit risk continues to fall.

Earnings reports were mixed. Among the firms delivering solid results were International Business Machines (IBM), Coca-Cola (KO) and Microsoft (MSFT). Shares of Coca-Coal (KO) climbed 3.59 percent and IBM rose 0.54 percent. MSFT dipped 0.77 percent because it was dragged down by the broader tech sector. Intel (INTC) slumped 16.24 percent on Friday after it said its 7 nanometer chips would be delayed until 2022 or 2023. Competitor Advanced Micro Devices (AMD) popped 16.50 percent as it is already manufacturing 7 nm chips.

Tesla (TSLA) also weighed on tech funds. It delivered positive earnings of more than $100 million, but this took selling $1 billion worth of government environmental credits. Shares finished the week down 5.66 percent.

 

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