Market Commentaries

  • Last Week’s Markets in Review: Surprise!


    U.S. equity markets moved higher last week, once again lead by the tech-heavy NASDAQ Composite index, despite some turbulence stemming from the apparent resurgence in COVID-19 cases throughout the week. In the U.S., the S&P 500 Index rose to a level of 3,185, representing a gain of 1.79%, while the Russell Midcap Index moved 0.31% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, bucked the trend returning -0.63%. International equities also moved higher, as developed and emerging markets returned 0.34% and 4.65%, respectively. Finally, the yield on the 10-year U.S. Treasury fell slightly amid the uncertainty finishing the week at 0.65%, down 3 basis points from the week prior.

    Recently we’ve had some data points that suggest the global economy is undoubtedly beginning to rebound. We’ve reviewed these data points extensively in past updates, and the picture taking shape is that the recovery rate is faster than many predicted. Predictions are the focus of this week’s update as we head into the highly anticipated second-quarter earnings season when forecasters will put out their best guesses on company performance this past quarter.

    To begin, let’s look at a more non-traditional set of indices that show how economic data has been tracking relative to consensus forecasts. These would be the Citigroup Economic Surprise Indices which, according to Bloomberg, are defined as:

    The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.

    Focusing on the U.S. Index, and as you can see in the chart below ending July 7, 2020, the surprise index has not only turned positive, but it’s at a record high.

    Citigroup Economic Surprise Index

    We’ve gone from a record-low at the end of April, which indicated conditions were worse than expected, to record highs. Encouraging data that has been surprising to the upside continues to reinforce the idea of a short, yet deep, recession. We’ve even seen some firms suggest that we’re in the early stages of another secular bull market. While we may not entirely be ready to make that call with the continued uncertainty around corporate earnings and certain geographic reopenings in question, we can appreciate the positive signals and are pleased with the apparent resilience of the stock market
    Coming up, we have second-quarter 2020 earnings season where the estimated earnings decline for the S&P 500 is -43.8%, according to FactSet. We’ll see if the trend of surprising to the upside continues. In the meantime, in the absence of data, the market will remain very reliant on the latest headline, which often means volatile trading sessions. For this reason, we encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame, and tolerance for risk.

    We recognize that these are very troubling and uncertain times and we want you to know that we are always here for you to help in any way that we can. Please stay safe and stay well.

    Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 7/10/20. Rates and Economic Calendar Data from Bloomberg as of 7/10/20. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using GICS methodology.

    Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

    There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Distributions from REIT investments are taxed at the owner’s tax bracket.

    The prices of small company and mid cap stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.

    Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.

    Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.

    Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.

    Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/24/19. Rates and Economic Calendar Data from Bloomberg as of 05/24/19. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.


    MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.

    MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.

    Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.

    ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.

    ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.

    Investors cannot directly purchase any index.

    LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.

    The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

    The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.

    DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.

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