Weekly Update 7/20/2020

Your Weekly Update for Monday, July 20, 2020.

Beacon Rock Wealth Advisors is a financial planning and registered investment advisory firm in Camas, Washington. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to[email protected].

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Have a great week!

Mike Elerath
CERTIFIED FINANCIAL PLANNER^TM
CERTIFIED IN LONG-TERM CARE
NATIONAL SOCIAL SECURITY ADVISOR

Bill Roller
NMLS #107972
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNER^TM
CHARTERED MARKET TECHNICIAN

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Summary

Markets ended mixed last week. The Dow Jones Industrial Average rose 2.29% to 26,671.95, while the S&P500 rose 1.25% to 3,224.73. The Nasdaq Composite fell 1.08% to 10,503.19. The annual yield on the 30-year Treasury rose 0.3 basis point to 1.329%.

A light calendar of economic data for the week included a record increase in non-manufacturing, lower producer prices, and stronger job openings.

Economic data last week included rebounds in retail sales, industrial production, and housing. Inflation metrics also showed a small creep up on prices for certain goods. Manufacturing data was mixed, while consumer sentiment weakened slightly.

Equities in developed nations around the globe generally gained, with hopes for a trough in economic growth and stock earnings, in addition to positive Covid vaccine tests. U.S. treasury bonds were flattish, while corporate credit and foreign bonds rallied. Commodities were little changed for the week on net.

Economic Notes

(+) Retail sales for June continued to rebound, by 7.5%, including a slight downward revision of a percent for the prior month—beating expectations calling for 5.0%. Among the largest gains for the month were in the cyclical areas of auto and gasoline station sales, which drove the headline number higher. On a core/control level, the gain was slightly less, at 5.6%. However, this included very strong recovery numbers in clothing/accessory (an over-100% increase), electronics, and furniture/home furnishings.

(+) Industrial production for June rose by 5.4%, beating expectations calling for 4.3%. This was led by an over-100% improvement in auto manufacturing, although non-auto production also rose by 4%, as business equipment and utilities production both grew at decent rates. Capacity utilization improved by 3.5% to 68.6%, still remaining at a depressed level.

(+) The Empire manufacturing index for July rose a dramatic 17.4 points to an expansionary reading of 17.2, beating expectations calling for a less dramatic 10.0 level. Increases were seen in key areas of new orders, shipments, and employment, all of which ended in expansionary territory. However, prices paid and the 6-mo. ahead business conditions index fell, yet remained in expansion.

(0/+) The Philadelphia Fed manufacturing survey, on the other hand, fell by -3.4 points to 24.1—still above the 20.0 level expected. Mixed results were seen under the hood, as new orders, prices paid, and employment both improved further (the latter back into solid expansion). However, shipments fell by -10 points, but remained in expansion. Interestingly, the measure of business conditions six months out declined by over -30 points, from extremely optimistic levels last month, but remained solidly positive.

(-) Import prices rose by 1.4% in June, exceeding expectations calling for 1.0%—driven by a 23% rise in petroleum. Removing that element, prices rose by 0.3%. Other segments included a sharp 7% increase in the prices for industrial supplies, and more tempered increases for capital goods and consumer goods.

(0/-) The consumer price index for June rose by 0.6% on a headline basis, led by a 12% increase in the price of gasoline. Each were just slightly higher than forecast. Removing the volatile energy and food components, the core index increased by a more tempered 0.2%. Notable items during the month, other than the sharp increase in energy costs and at-home food, were higher prices for medical services and goods. This also appeared to include signs of higher prices for air travel and hotels, among a couple of other consumer sectors, as activity restarted around the country. Year-over-year, this brought the headline and core rates of increase to 0.6% and 1.2%, respectively, which fall far below policy expectations, but not surprising during a recession. The Atlanta Fed’s ‘sticky price’ CPI measure—of items that change in price slowly—came in stronger, at a 2.2% year-over-year rate. The ‘Flexible CPI’ measure, on the other hand, is down -2.2% for the past year.

(+) The NAHB homebuilder sentiment index for July came in at 72, stronger than the 61 expected. Current sales and prospective buyer traffic both saw double-digit gains, while future sales gained to a less dramatic degree. Regionally, the Northeast fared especially well, which has seen a decrease in Covid cases, and perhaps signs of movement away from urban living.

(0/+) Housing starts for June rose by 17.3% to a seasonally-adjusted annualized rate of 1.186 mil. units. This was just short of the 22.2% expected increase to 1.190 mil. units, although the prior month was revised higher by a bit, bringing the year-over-year decline to -4%. Single-family and multi-family starts rose to a nearly equal degree for the month. Regionally, the Northeast saw an over-100% increase in starts activity, followed by the Midwest and South at over 20%, while those in the West fell by -7%. Building permits rose 2.1% in June, falling short of the forecasted 6.3% gain, led by single-family permits up 12%, while multi-family dropped by -13%. The regional patterns were similar, with the Northeast and Midwest seeing gains, while permits in the South and West slightly fell. While the news shows improvement, the units under construction remain the lowest in three years, which could continue to keep inventory tight. Some of this is due to an ongoing shortage of workers, as well as social distancing requirements that have reduced worker counts.

(-) The July Univ. of Michigan index of consumer sentiment fell by -4.9 points to 73.2, below a small increase to 79.0 expected by consensus. Consumer assessments of current conditions fell a few points, while expectations for the future fell by -6, accounting for the bulk of the decline. Inflation expectations for the coming year rose a tenth of a percent to 3.1%, while those for the next 5-10 years rose by 0.2% to 2.7%—both were relatively high compared to historical experience.

(-) Initial jobless claims for the Jul. 11 ending week fell by -10k to 1.300 mil., just above the 1.250 mil. level expected by consensus. Continuing claims for the Jul. 4 week declined by -422k to 17.338 mil., which was a touch below the 17.500 mil. rounded consensus estimate. Conditions remain at multi-decade extreme levels, despite a slowing in claims deterioration, except for FL and CA, which have been harder hit in recent weeks with higher infection rates. It is interesting to note that initial claims remain high, meaning that workers are continuing to be laid off, although the definitional difference between being furloughed and unemployed (especially from an employer payroll and government assistance perspective) remains murky.

Market Notes

Period ending 7/17/2020	1 Week (%)	YTD (%)
DJIA	2.32	-5.30
S&P 500	1.27	0.89
Russell 2000	3.57	-11.01
MSCI-EAFE	2.20	-7.69
MSCI-EM	-1.33	-5.35
BBgBarc U.S. Aggregate	0.23	6.96

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
7/10/2020	0.13	0.16	0.30	0.65	1.33
7/17/2020	0.11	0.14	0.29	0.64	1.33

U.S. stocks experienced strong gains last week, with the S&P reaching levels not seen since past highs in February. There were few news events to drive this optimism, other than continued optimism over a timeline for a vaccine based on several positive early test results, which offset news of setbacks for several regions that have paused re-openings—notably continued rising cases in the South, West, and now the Mountain states. Dr. Anthony Fauci, in charge of the U.S. Covid effort, has offered hope of a viable vaccine by year-end, which has surpassed the general consensus calling for early- to mid-2021.

By sector, industrials, materials, and health care each rose over 5% on the week, while technology and communications bucked recent trends by being the only sectors that lost ground last week. Disappointing results for FANG member Netflix was a key part of pulling down the communications group. Small caps have rallied a bit with broader market sentiment moving a bit back toward cyclicals. Coming weeks will provide more clarity on the earnings environment for Q2, but, so far, the poor results are not quite as bad as the dour estimates.

Foreign stocks gained with similar hope for Covid vaccine progress. Europe and U.K. experienced the strongest gains, on par or better with results in the U.S. While the ECB took no policy action last week, discussions over additional stimulus measures appeared to help sentiment. On the other hand, emerging markets lost ground, as Chinese stocks declined with government language pointing to a continued need for tempered expectations, perhaps in response to the sharp market rally the prior week.

U.S. treasury bonds gained slightly with little changes in interest rates over the week, while both investment-grade and high yield corporates gained a percent or more as credit spreads contracted. A weaker dollar boosted developed market and emerging market dollar-denominated debt.

Commodities declined across the board slightly last week, except for precious metals, despite the weaker dollar. The price of crude oil ticked up minimally to just under $41/barrel, even as production cuts by the OPEC+ group for August were pared back, while natural gas prices fell by almost -5%.

Mortgage Rates

Mortgage rates have hit historic lows!  Please consider Beacon Rock Wealth Advisors for your home financing needs. We handle purchases, refinances, and reverse mortgages.

“Mortgage rates fell below 3% for the first time in 50 years. The drop has led to increased homebuyer demand and, these low rates have been capitalized into asset prices in support of the financial markets,” said Sam Khater, Freddie Mac’s Chief Economist. “However, the countervailing force for the economy has been the rise in new virus cases which has caused the economic recovery to stagnate, and this economic pause puts many temporary layoffs at risk of ossifying into permanent job losses.”

The 30-year fixed-rate mortgage averaged 2.98% with an average 0.7 point for the week ending July 16, 2020, down from 3.03%. A year ago at this time, the 30-year FRM averaged 3.81%.

The 15-year fixed-rate mortgage averaged 2.48% with an average 0.7 point, down from last week when it averaged 2.51%. A year ago at this time, the 15-year FRM averaged 3.23%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.06% with an average 0.3 point, up slightly from last week when it averaged 3.02%. A year ago at this time, the 5-year ARM averaged 3.48%.

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 the 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 at 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 & Poor’s, 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.