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 decline in July benefited large U.S. multinationals, whose products and services became more competitive while their earnings are primarily driven in the overseas market. The rebound in stocks from the lows of March, when the COVID-19 pandemic became official, has exceeded the expectations of both analysts and economists.

A consistent low-rate environment along with a weaker U.S. dollar bodes well for U.S. multinational companies, whose profits benefit from both low rates and a weak dollar. U.S. exports essentially become cheaper overseas, driving higher demand. (Sources: Bloomberg, Reuters, FRED)

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

Continued low 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. Historic low mortgage rates are a buffer 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 a normal yield curve, indicating some inflationary expectations and future economic growth. (Sources: Freddie Mac, Bloomberg, U.S. Treasury)

I find that the word “unprecedently” is often misused or over-used, however, what we are collectively experiencing is remarkable and in this case, truly unprecedented.

We are truly living in unprecedented times—socially, politically, and economically. While the rapidly shifting coronavirus pandemic continued pushing the U.S. and many other global economies into one of the deepest recessions in decades, this past quarter also brought a robust recovery in stock prices and strong returns in the bond market.

Here are some of the highlights:

• This economic recession is deep. Since late March, the U.S. economy has seen an annualized 12.8% decline in real GDP (gross domestic product)—the largest contraction since just after World War II, and about three times deeper than what we experienced during the 2008-09 global financial crisis.
• U.S. stocks rebounded. As of June 30, the S&P 500 index was at -3.1% for the year to date. This signified that the market as a whole had recovered a good portion of the losses it experienced in March as the COVID-19 pandemic began to surge.
• Bonds stayed strong. Although year-to-date yields declined somewhat, total returns for U.S. Treasuries and many other bond categories have been quite good.

In another positive sign, analysts are predicting that U.S. corporate earnings should recover over the next 12 months though that is still contingent on how COVID infection rates progress. We’re also seeing indications that non-U.S. stocks in many countries are significantly undervalued relative to U.S. stocks—which reinforces my belief of consistently maintaining globally diversified holdings in our portfolios.

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 that has resulted from 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 to increase the circulation of coins. A dramatic drop in retail sales wasn’t the only cause of the shortage, but a drop in coin production at the U.S. Mint was also the culprit. Many federal employees for the U.S. Mint were shuttered from work as coronavirus infections spread throughout private and 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 such as laundromats traditionally require coins for payment.

The onset of the pandemic brought about a dramatic reduction in the use of coins, leading to a widespread shortage among retail stores, banks and even the Federal Reserve. (Sources: U.S. Mint, Federal Reserve)

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

In an effort to determine what economic impact the pandemic has had and is having 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 whose measures represent activity throughout the economy. The index has so far illustrated that there has been a deviation from normal mobility behavior since the onslaught of COVID-19 induced restrictions.

The index clearly identified a drop in mobility activity when the initial stay at home restrictions were imposed in March and it also acknowledged an increase in activity when some restrictions were relaxed. The data is gathered daily and released by the Federal Reserve Bank of Dallas weekly. (Source: Federal Reserve)