Hey Folks as August comes to an end we’ve seen Equities blast even higher on the back of cheap money and a very supportive Fed along with a strong Tech rally. Get my take below on where we can go from here;
WEEKLY SOUND BITES;
• Markets finished higher last week, on track for its best August in 34 years, and continuing the rally after the third bear market in two decades… The S&P is up nearly 52% since the bear market bottom on March 23, and is up nearly 8% for the year, posting a new record high moving over 3500…The DOW also moved into the green YTD post pandemic while small caps also showed signs of strength as well… A real-time forecast from the Federal Reserve Bank of Atlanta estimates that third-quarter GDP will grow 26% following a 32% annualized decline in the second quarter. If this proves to be the case, by the end of September the economy will have recovered half of its pandemic-induced losses, leaving real GDP about 5% below its pre-crisis level. Still a lot of ground to cover, but a good first step.
• The housing market has been a notable area of strength, as new and existing home purchases are now exceeding their pre-pandemic levels (best levels since 2006) and are rising strongly from a year ago. Consumers also redirected spending from travel, leisure and other services to durables and other hard goods, driving July retail sales about 1% higher from their January high…in addition, industrial production has improved for three consecutive months, but is still about 8% below its peak, seemingly lagging demand. However, forward-looking surveys point to a solid pace of recovery ahead…
• However, unemployment is still high and showing an uneven recovery… Almost six months after a record 6.9 million Americans filed for unemployment benefits in March, initial jobless claims continue to run above one million per week, which is higher than any point during the Great Financial Crisis in 2008…The initial rapid improvement in unemployment was facilitated by the return of the temporarily furloughed workers to their previous jobs once the economy reopened. As activity in large segments of the services economy remains constrained, some of the temporary layoffs are turning permanent, which poses a threat to consumer confidence and the trajectory of the recovery…
• At the annual Jackson Hole policy symposium, Fed Chair Powell announced a shift in the Fed’s approach to achieving its long-term average inflation target. This means that the Fed will allow inflation to run “moderately” above its 2% goal for some time following a period of below-average inflation. The Fed also revised its policy stance around changes in employment, suggesting that the central bank will continue to provide accommodation when unemployment is high, but may no longer raise rates to cool off the economy simply because unemployment is low…
• With 98% of the S&P 500 companies having reported second-quarter results, the earnings delivery has been much stronger than expected. Improving economic data and an extremely low hurdle rate have led to earnings revisions improving in all regions, with upward revisions for Q3… Valuations are elevated compared with long-term historical averages, reflecting record-low interest rates and the influence that has on how much investors are willing to pay for future earnings. However, future equity returns will have to rely heavily on earnings growth rather than further valuation expansion.
• In the biggest adjustment to the index since 2013, S&P Dow Jones Indices announced last week that Salesforce.com, Amgen, and Honeywell International Inc. will replace Exxon Mobil, Pfizer, and Raytheon Technologies Corp. effective September 1. The addition of Salesforce and removal of Exxon, which was the most valuable U.S. publicly traded company as recently as 2014, is the main headline and was triggered by Apple’s 4-for-1 stock split…and since the Dow is a price-weighted index instead of a market-cap-weighted index like the S&P 500, stocks with higher share prices (and not necessarily larger market capitalization) get a bigger weighting…Had the committee not made this swap, the Dow’s technology weight would have been almost 8% lower than the S&P 500’s…Therefore, the announced changes somewhat close this gap and make the Dow more reflective of the current state of the U.S. economy, which is more consumer- and technology-oriented than industrial-based…
Enjoy our Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
