Summit Snapshot: Week of June 22th, 2020
Global Markets: Stocks rose modestly as the Fed committed to further corporate bond purchases
- U.S. Equities recorded a small weekly increase to counteract the prior week’s steep decline. The S&P 500 Index fared well overall as it rose by 1.9% but leading the headline domestic stock indices was the Nasdaq Composite Index which rose even more by 3.7% nearing its previously reached all-time high. Insightfully, eight of the S&P’s sectors advanced, as information technology (+2.8%) and health care (+3.2%) both performed well. The laggards included energy (-0.8%), real estate (-0.6%), and the most pronounced defensive sector utilities (-2.4%). These reactions unfolded as the Fed Chair Jerome Powell testified before Congress who pushed for more fiscal support to be given in conjunction with the recently issued monetary stimulus. There is no clear news available but rather some rumors circulating claiming a new $1 trillion plan is being discussed at the White House. Small-cap stocks (+2.3) narrowly outperformed large-caps (+2.0%) and growth beat value adding to the existing disparity between styles as represented by their respective Russell indices.
- International Equities followed a similar path to U.S. equities as most indices rose. The developed, international MSCI EAFE Index rose by 2.1% for the week, while the MSCI Emerging Markets Index followed behind as it rose 1.6%. Most countries around the globe ended the week higher supported by various stimulus efforts and the reopening of economies. For instance, the Bank of England pledged to expand its bond-buying program by £100 billion, and Japanese stocks rose from positive sentiment and an imminent recovery despite a steep reported drop in exports. Interestingly, the MSCI EM Latin America Index declined although Brazil, its largest country constituent, reported positive local currency returns. This is due in part to the decline of the Brazilian Real relative to the U.S. Dollar and increasing coronavirus cases in emerging markets.
- Credit Markets were flat to higher in most areas as yields remained unchanged over the week. The representative 10-year U.S. Treasury yield held firm from the week before at 0.70%. The largest catalyst for credit securities last week was the Fed’s announcement it will begin purchasing individual U.S. corporate bonds to complement the existing purchases of exchange-traded funds. Following this optimistic statement and improved overall sentiment, bond sectors including investment-grade corporate bonds, high-yield corporate bonds, and municipal bonds all rose. Most of them experienced net inflows and increased volumes of new deals.
Economic Data/News: Economic recovery shape remains questionable amidst contradictory news while global COVID-19 cases are seemingly on the rise
- U.S.: Since most states have reopened already and economic activity is on the upswing, a few factors are becoming evident. First, new cases of COVID-19 are continuing to increase rapidly in some states including California, Florida, Texas, and Arizona. These states are now grappling with methods to cope with the influx of infected residents in hospitals and stricter methods to contain the virus. Simultaneously, the nation’s weekly economic data offered concern around the true shape of a full economic recovery. More specifically, on Tuesday the Commerce Department reported a 17.7% increase in monthly retail sales in May, the best in history that doubled expectations. However, the labor market news contradicted the positive retail sales news, as initial weekly jobless claims tallied in at 1.51 million Americans which was more filings than was expected. Additionally, continuing jobless claims remained inflated at over 20 million.
- International: Economic news abounds in many countries impacted by the virus’s effects while they deal with escalating new cases being reported. In the U.K., inflation fell to a four-year low of 0.5% as crude oil prices plunged, and the number of unemployment claims rose by 528,000 in May to a total of 2.8 million. Japan’s exports declined by 28% year-over-year in May, proof the virus has crippling effects on global product demand. Amazingly, Japanese vehicle exports sent to the U.S. fell by almost 50% in May, far worse than economists forecasted. China’s employment situation is interesting as the latest Manpower survey indicated hiring intentions have moved into positive territory (+4), still the lowest level in four years, but hinted to a quicker economic recovery than previously thought. Some emerging market countries are facing the grim reality the coronavirus is spreading like wildfire, contributing to the largest single-day report of new cases yet that occurred on Friday, over 180,000. Brazil, Russia, and India are all getting hammered with new daily cases, and Brazil has recently surpassed 1 million confirmed cases, second in the world only to the U.S.
Odds and Ends: San Francisco’s pricy apartment rents start to decline, New York City’s garages prepare for increased demand as the city reopens, and women’s job losses may impede the economic recovery
- The most expensive area to rent an apartment in the U.S., San Francisco is starting to feel some effects. The apartment vacancy rate rose from 3.9% in February to about 6.2% in May as companies ordered work-from-home orders and some tenants didn’t renew their leases. In a related sense, the median rent for a one-bedroom apartment leveled in at $3,360 per month, which is down more than 9% year-over-year. Ironically, the lower cost is still the most expensive in all major U.S. cities. At the same time, suburban home sales are rising in affordable areas as people adapt to the “new normal” without the expectation to return to urban life anytime soon.
- As areas around the country continue to reopen, New York City is anticipating more than 100,000 people could be working back in their offices by August. Although this is a fraction of the city’s pre-pandemic working population, it is significant and means they’ll need a way to commute there. Most people are still uncomfortable using public transportation, so parking garages are expecting a very large increase in demand. Some firms are even considering subsidizing the parking costs for their employees, which is roughly $500 per month on average for a space between 60th street and the southern tip of Manhattan. We will see if the new garage parking demand levels are sustained.
- A potential impediment to the economic recovery, women have lost jobs at a faster rate than men during the pandemic. Since women account for most employees dedicated to the food service and personal care sectors, they are more impacted from the economic shutdown as those sectors suffered. In a survey conducted by the Labor Department, the labor force participate rate for women between the ages of 25 to 54, declined to 73% in May from 77% in February. Likewise, the similar rate for men of this age declined to 87% in May from 89% in February indicating that women felt the brunt of the job losses. Also, since new jobs are being created slowly and childcare responsibilities are likely to remain, women are not expected to jump right back into the employment market as quickly as men.
Resource of the week:
- As a sequel to a previous week’s podcast recommendation, this episode of Business Casual features a conversation with Nicolas Jammet, founder and co-CEO of the fast-casual salad shop Sweetgreen, and JJ Johnson, founder and chef at a new rice bowl shop Fieldtrip. It focuses on the fast-casual business and how business owners can thrive let alone survive in a pandemic or even generally. The discussion covers a vast timespan from the last recession to today’s ongoing one and offers ideas to any of these types of businesses to emerge through it stronger than before. Please feel free to submit suggested resources to [email protected].
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update
This commentary was written by Craig Amico, CFA®, CIPM®, Senior Investment Analyst, Noreen Brown, CFA®, Director of Portfolio Management and Steven Melnick, CFA®, Senior Investment Analyst at Summit Financial, LLC., an SEC Registered Investment Adviser (“Summit”), headquartered at 4 Campus Drive, Parsippany, NJ 07054, Tel. 973-285-3600. It is provided for your information and guidance and is not intended as speciﬁc advice and does not constitute an offer to sell securities. Summit is an investment adviser and offers asset management and ﬁnancial planning services. Indices are unmanaged and cannot be invested into directly. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.