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August 2020
Market Update
(all values as of 11.30.2020)

Stock Indices:

Dow Jones 29,638
S&P 500 3,621
Nasdaq 12,198

Bond Sector Yields:

2 Yr Treasury 0.16%
10 Yr Treasury 0.84%
10 Yr Municipal 0.71%
High Yield 4.79%

YTD Market Returns:

Dow Jones 3.86%
S&P 500 12.10%
Nasdaq 35.96%
MSCI-EAFE 0.83%
MSCI-Europe -1.42%
MSCI-Pacific 4.67%
MSCI-Emg Mkt 8.11%
 
US Agg Bond 7.36%
US Corp Bond 9.41%
US Gov’t Bond 8.83%

Commodity Prices:

Gold 1,780
Silver 22.72
Oil (WTI) 45.06

Currencies:

Dollar / Euro 1.19
Dollar / Pound 1.33
Yen / Dollar 104.06
Dollar / Canadian 0.76

Macro Overview

A second wave of mandatory business closures throughout the country is expected to have challenging ramifications for many employers that already weathered an initial wave of shutdowns. A substantial amount of stimulus funds and programs was available to individuals and small businesses following the initial wave of closures and lockdowns in March and April; however, benefits delivered by a second stimulus batch are not expected to be as generous. Tensions with China escalated as the U.S. State Department identified several Chinese nationals as alleged spies. They were accused of gathering sensitive data on COVID-19 research and absconding with intellectual property. The latest occurrences add complications to U.S./China trade negotiations

Equities rose higher in July, driven by palatable earnings reports for U.S. companies and the expectation of successful vaccine trials by several pharmaceutical firms. A rise in viral infections nationwide, along with a rollback of re-openings by some states and cities, pose the threat of halting a desperately-anticipated economic growth spurt. Congress sought to avoid a lull in financial relief as provisional government stimulus benefits expired at the end of July. A second stimulus plan is expected to be markedly different in composition from its predecessor, albeit still targeted toward small business relief and unemployed individuals.

Gold and silver both reached notable highs in July, driven by global pandemic concerns, the inflationary outlook in the context of expansionary monetary and fiscal policy, and recent tensions surrounding the relations between China and the United States. Gold surpassed its previous all-time high set in 2011 and silver achieved a six-year high. GDP for the second quarter, ending June 30th, shrank by an annualized rate of 32.9%, the steepest quarterly drop on record. The substantial drop was anticipated by economists and analysts. The economic activity slowdown was even more pronounced in Europe, where GDP within the EU fell by more than 48% on an annualized basis.

The Centers for Disease Control and Prevention (CDC) reiterated the importance of re-opening schools in the fall for the benefit of families nationwide. The CDC noted that death rates among school-aged children are much lower than among adults, while the factors negatively affected by school shutdowns include the social development, emotional and behavioral health, economic well-being, and academic progress of children. Working families are finding it increasingly difficult to work and care for their children at home during the pandemic, particularly given school closures. (Sources: CDC, Federal Reserve, Bureau of Economic Analysis, Dept. of State)

 
30 year mortgage rates fell to their lowest levels ever to 2.99%

Resilient Equity Market Advances In July – Domestic Equities Update

Equities advanced in July, led by the technology sector, which has remained resilient since the onset of the pandemic. The dollar’s tumble in July benefited large U.S. multinationals, whose products and services became more competitive as their revenues are primarily driven in the international markets. The rebound in stock prices from the lows of March, when the COVID-19 pandemic became official, has exceeded the expectations of many analysts and economists. A consistent low-rate environment in conjunction with a weaker U.S. dollar bodes well for U.S. multinational companies, whose profits benefit from both low interest rates and a dollar that’s weak relative to other currencies. A weak dollar makes U.S. exports cheaper overseas, driving increased sales. (Sources: Bloomberg, Reuters, FRED)

30-Year Mortgage Rates Drop to Record Lows – Fixed Income Overview

Low interest rates drove mortgage rates to their lowest levels ever, pushing the average 30- year fixed conforming rate to 2.99% in July as reported by Freddie Mac. Historically low mortgage rates are a boon for the housing market, where continued high unemployment is expected to hinder loan approvals. U.S. government bond yields fell across all maturities in July, with the benchmark 10-year Treasury yield reaching 0.55% and the 30-year Treasury yield falling to 1.20%. Economists view the higher yielding long-term bonds as representative of a normal yield curve, indicating some inflationary expectations and future economic growth. (Sources: Freddie Mac, Bloomberg, U.S. Treasury)

Mysterious Seeds Appear In U.S. Mailboxes – Federal Safeguards

Officials from over 27 states, as well as the U.S. Department of Agriculture (USDA), are urging people across the country to be aware of packages containing seeds from China. The seeds appear to have been mailed directly from China in white pouches displaying Chinese lettering and the words “China Post.” Various state agricultural departments reported the packages marked as jewelry, earbuds, and toys.

The U.S. Department of Agriculture is warning recipients of these seeds that they could be invasive species that may introduce diseases to local native plants. The seeds may be harmful to livestock and increase the cost of food production for various crops and meats. Invasive plant species and noxious weeds can potentially displace established crops and jeopardize a sensitive food chain. The USDA is urging recipients of these seeds to avoid planting them and to contact the USDA to notify them of the contents received. It is still unknown whether the seeds are intended to destabilize a food chain or if they are merely sent as a “brushing” scam, in which an online seller sends unsolicited packages to artificially boost sales numbers and generate fake positive online customer reviews.

As of July 29th, the USDA had identified several of the seed species as herbs including mint, sage, rosemary, and lavender. The USDA will continue to test and examine all seeds until it determines that the seeds pose no threat to the U.S. food chain. (Source: U.S. Department of Agriculture)

 
49% of goods and services under $10 were paid for in cash in 2018

Shortage Of Coins Makes For No Change – Currency Dynamic

A reduction in the use of cash may have escalated a shortage of coins throughout the country. Retail stores and grocery stores across the country are experiencing a shortage of coins caused by a trend of fewer coins being exchanged and spent since the onset of the pandemic.

In order to stimulate coin circulation, the U.S. Mint is asking Americans to use any spare change they may have. A dramatic drop in retail sales was not the only cause of the shortage; a drop in coin production at the U.S. Mint was a contributing factor as well. Many federal employees for the U.S. Mint were prohibited from going to work as coronavirus infections spread through many government work places.

Coins are used widely throughout the economy by consumers for a host of various products and services. Federal Reserve data from 2018 shows that 49% of goods and services under $10 were paid for in cash. Services like laundromats often require coins for payment. (Sources: U.S. Mint, Federal Reserve)

Your Mobile Phone Tells The Fed About The Economy – Government Research

In an effort to analyze and assess the economic impact that COVID-19 and associated government restrictions and behavioral changes had on the U.S. economy, the Federal Reserve gathered geolocation data from mobile devices and compiled an index measuring activity of the public and consumers nationwide. The Federal Reserve Bank of Dallas created the Dallas Fed Mobility & Engagement Index, which captures metrics that represent activity throughout the economy. The index illustrates a deviation from normal mobility behavior since the onset of restrictions related to COVID-19.

The index clearly identified a drop in mobility activity when the initial stay-at-home restrictions were imposed in March, and it also showed an increase in activity when some restrictions were relaxed. (Source: Federal Reserve)

 

 
coffee shops provide a socialization experience that consumers desire

Coffee Drinkers Consuming Fewer Cups Of Coffee – Consumer Socialization

With the adoption of work-from-home practices, global coffee consumption has experienced a significant decline since the beginning of the pandemic. As many dine-in restaurants and coffee shops close temporarily or permanently, the demand for coffee has not been sustained by at-home consumption. The U.S. Department of Agriculture projects the coffee consumption trajectory to continue declining through the fall of 2020, which would be the first decline in coffee consumption over the last decade.

The coffee shop culture provides a social experience to which consumers have been drawn for years. Now a decrease in consumption amidst the pandemic is illuminating many consumer preferences. The decrease in sales corresponding to the temporary and permanent closings of many storefronts reflects a decision by some consumers to avoid consuming coffee when the social aspect is removed. Additionally, consumer fears about virus contagion have hurt sales at coffee shops despite gradual re-openings and business model reconfigurations. In lieu of buying coffee at shops, consumers are beginning to transition to cheaper at-home alternatives.  Recent consumption trends introduce uncertainty for coffee growers. The International Coffee Association highlights concern for the livelihood of growers and laborers in coffee exporting countries if the industry continues to decline.

Despite economic downturn and consumer hesitance to return to in-house dining and consumption, many companies are creating new models that would make business more accessible and efficient. Such business models include increased focus on drive-thru options, mobile orders, and store pickups. This transition into new business paradigms, along with the rise of popular social media trends, could potentially contribute to the survival of the coffee culture and industry. (Sources: U.S. Department of Agriculture, Bloomberg)

FDA Recalls Toxic Sanitizers – Consumer Awareness

The Federal Drug Administration (FDA) updated the list of toxic hand sanitizers as FDA investigations and research continued. In late July the FDA established a list seventy-five products, which marks a significant increase from the previously-listed nine products in late June. Given a spike in demand for hand sanitizers, the FDA anticipates that investigations will persist as quality issues or concerns rise.

Many of the listed products that comprise the FDA list of toxic hand sanitizers contained the toxic substance methanol. Recent research found that methanol contamination causes extreme adverse effects in humans if absorbed, leading the FDA to deem it unsafe for human consumption. The FDA warns against the use of the listed products that contain methanol, in addition to warning against using hand sanitizers that carry misleading claims and marketing tactics. Many product claims regarding prolonged virus protection are unfounded. The FDA advises consumers to refrain from purchasing or using products that fall under the recall list. The updated FDA list of these 75 products can be found under the heading “FDA List of Recalled Sanitizers” on the FDA press release. (Source: Federal Drug Administration)