Your Weekly Update for Monday, October 12, 2020.
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Mike Elerath
CERTIFIED FINANCIAL PLANNERTM
CERTIFIED IN LONG-TERM CARE
NATIONAL SOCIAL SECURITY ADVISOR
Bill Roller
NMLS #107972
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNERTM
CHARTERED MARKET TECHNICIAN
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Summary
Markets were up last week. The Dow Jones Industrial Average rose 3.27% to 28,586.90, while the S&P500 rose 3.84% to 3,477.13. The Nasdaq Composite rose 4.56% to 11,579.94. The annual yield on the 30-year Treasury rose 9.3 basis points to 1.574%.
In a light week for economic data, the ISM services index continued to show expansion, the trade deficit widened, and the improvement in jobs data decelerated.
Global equity markets gained across the board as hopes for further stimulus again improved. Bonds were mixed as interest rates rose, although high yield bonds gained. Commodities rose several percent in several groups, especially in energy, as hurricane-related shutdowns dampened production and supply.
Economic Notes
(+) The ISM non-manufacturing index for September rose by 0.9 of a point to 57.8, higher than the 56.2 expected and continuing a stretch of expansion. Underlying components were also strong, shown by gains in business activity and new ordersāwhich moved further into expansion. Employment moved up nearly 4 points, back into expansion. On the other hand, prices paid, supplier deliveries, and new export orders fell by several points but remained expansionary.
(-) The trade balance for August moved further into deficit by -$3.7 bil. to -$67.1 bil., wider than the forecasted -$66.2 bil. Trade volumes overall rose, which was a positive. Imports overall rose 3%, interestingly to their levels seen prior to the pandemic. Exports gained 2%, with the petroleum segment up 5%.
(-) The JOLTS job openings report showed a decline of -204k for August to 6.493 mil., after upward revisions for the prior month, but fell short of the consensus forecast calling for 6.500 mil. The hiring rate came in unchanged at 4.2%, while the job openings rate fell by -0.2% to 4.4%. The layoff rate fell by -0.3% to 1.0%, while the quits rate declined by a tenth to 2.0%. There appears to be some deceleration in jobs growth, as noted in other employment data.
(0) Initial jobless claims for the Oct. 3 ending week fell by -9k to 840k, but stayed above the consensus estimate calling for 820k. Continuing claims for the Sep. 26 week fell by -1.003 mil. to 10.976 mil., below the 11.400 mil. level expected. Numbers continue to sporadically improve, but the overall level of jobless claims remains very highānotably on the initial claims side, although no clear pattern was seen by state or region for the week.
(0) The FOMC minutes from the September meeting did not offer major surprises, but did provide a bit more information on the nuanced differences in opinion among the members. Interestingly, a few wanted even stronger language around accommodative policy; others appeared to be less willing to be pinned down to a specific path of policy, as opposed to retaining the usual level of flexibility to change policy as needed to achieve goals. This perceived rigidity is one of the downfalls of overly-specific forward guidance communications. Overall, though, all members continue to view inflation as challenged through the remainder of the year. At the same time, there is a sensitivity to the perception that low interest rates for an extended period can contribute to āasset bubbles.ā This has to be weighed with the need to provide as much stimulus as needed to get the economy out of a unique recessionānot an easy set of goals to balance on a real-time basis.
Market Notes
| Period ending 10/9/2020 | 1 Week (%) | YTD (%) |
| DJIA | 3.31 | 2.02 |
| S&P 500 | 3.89 | 9.22 |
| NASDAQ | 4.57 | 29.99 |
| Russell 2000 | 6.40 | -0.80 |
| MSCI-EAFE | 2.98 | -4.31 |
| MSCI-EM | 3.77 | 0.70 |
| BBgBarc U.S. Aggregate | -0.17 | 6.55 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2019 | 1.55 | 1.58 | 1.69 | 1.92 | 2.39 |
| 10/2/2020 | 0.09 | 0.13 | 0.28 | 0.70 | 1.48 |
| 10/9/2020 | 0.10 | 0.16 | 0.34 | 0.79 | 1.58 |
U.S. stocks gained sharply last week, earning the best returns in about three months. This was despite sentiment taking a downward turn Tuesday as the President called an end to Congressional stimulus negotiations until after the election. This naturally disappointed many, as hopes for a robust aid package appears to be needed for pandemic-affected workers/consumers and businesses in light of a mixed recovery. Later, however, a tweet kept open the door for possible aid in more of a āpiecemealā form, as did language later in the week, which alluded to an even larger stimulus plan. The differential in planned stimulus packages appears to be tightening, with the Presidentās figure rising from $1.6 to $1.8 tril.ācompared to the already-passed $2.2 tril. House version. This apparent change in tune undoubtedly raised stock market sentiment, although odds of passage before the election remain debatable.
Every sector ended in the positive last week, led by cyclical materials and energy each up 5%āthe latter helped by higher oil prices. Communications services and consumer staples fell at the back of the pack, yet were still up 2%. Real estate gained a percent, held back by higher interest rates. Small cap stocks, which have been lagging larger caps significantly this year, came in as the strongest performers. Earnings season will begin this coming week in earnest, with general expectations of a mixed picture for Q3.
Foreign developed market stocks provided returns just behind those of domestic stocks, while emerging markets fared a bit better. Sentiment in areas such as Europe remain highly correlated to global pandemic effects, and last week, by sentiment in the U.S. surrounding efforts to agree on a stimulus package. The fact that foreign markets care so much about U.S. stimulus is related to the far more āglobalā relationship between businesses and consumers than in decades past. Essentially, any stimulus provided by major governments is seen as a boost to global consumer demand, and GDP results, which benefit all. This is despite several disappointments in economic growth numbers, as well as further lockdowns in Europe as Covid cases continue to re-escalate. Sentiment in Japan, however, was more upbeat, with chances for additional needed stimulus looking less likely. Otherwise, several more cyclical and commodity-based economies saw the strongest gains last week, including Australia, Brazil, and Mexico.
U.S. bonds fell back slightly on the week, as long-term interest rates ticked higher. Due to strength in equity markets, high yield bonds and floating rate bank loans also fared better than investment-grade debt. A weaker U.S. dollar helped foreign developed market returns, while emerging market bonds in both USD-denominated and local currency versions were each up over a percent each.
Commodities gained ground by several percent broadly last week, led by energy, although agriculture and metals prices also increased a few percent. The price of crude oil spiked by 10% to just over $40.50/barrel, with similar gains in natural gas prices, as production in the Gulf of Mexico shut down due to Hurricane Delta, and OPEC came out with an optimistic outlook for producers.
Mortgage Rates
āThe year-long slide in mortgage rates seems to be ending as rates have flattened over the last month and the economic rebound has slowed,ā said Sam Khater, Freddie Macās Chief Economist. āBut with near record low rates, buyer demand remains robust with strong first-time buyers coming into the market. The demand is particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.ā
The 30-year fixed-rate mortgageĀ averaged 2.87% with an average 0.8 point for the week ending October 8, 2020, slightly down from last week when it averaged 2.88%. A year ago at this time, the 30-year FRM averaged 3.57%.
The 15-yearĀ fixed-rate mortgageĀ averaged 2.37% with an average 0.7 point, slightly up from last week when it averaged 2.36%. A year ago at this time, the 15-year FRM averaged 3.05%.
The 5-year Treasury-indexed hybrid adjustable-rate mortgageĀ (ARM) averaged 2.89% with an average 0.2 point, slightly down from last week when it averaged 2.90%.Ā A year ago at this time, the 5-year ARM averaged 3.35%.
Freddie Macās Primary Mortgage Market Survey is focused on conventional, conforming, fully-amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for theĀ Definitions. Borrowers may still pay closing costs which are not included in the survey.
Through our relationship with Prestige Home Mortgage in Vancouver, Washington we originate residential and reverse mortgages. Check us out at https://beaconrwa.com and our affiliated websites atĀ https://reverse-mortgages.us and https://socialsecurityquestionsanswered4u.com.
Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poorās, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.