Derek J. Sinani

Founder/Managing Partner

derek@ironwoodwealth.com

17015 N. Scottsdale Road Suite 235

Scottsdale, AZ 85255

480.473.3455

August 2020
Market Update
(all values as of 05.31.2021)

Stock Indices:

Dow Jones 34,529
S&P 500 4,204
Nasdaq 13,748

Bond Sector Yields:

2 Yr Treasury 0.14%
10 Yr Treasury 1.58%
10 Yr Municipal 0.97%
High Yield 4.24%

YTD Market Returns:

Dow Jones 12.82%
S&P 500 11.93%
Nasdaq 6.68%
MSCI-EAFE 9.03%
MSCI-Europe 11.95%
MSCI-Pacific 4.18%
MSCI-Emg Mkt 5.38%
 
US Agg Bond -2.29%
US Corp Bond -2.85%
US Gov’t Bond -2.95%

Commodity Prices:

Gold 1,909
Silver 28.14
Oil (WTI) 66.91

Currencies:

Dollar / Euro 1.21
Dollar / Pound 1.41
Yen / Dollar 109.42
Dollar / Canadian 0.82

Macro Overview

A second wave of mandatory business closures that transpired throughout the country is expected to have more challenging ramifications for many employers than the first wave of shutdowns. The amount of stimulus funds and stimulus programs available to small businesses and individuals was substantial following the initial wave of closures and lock downs in March and April, yet benefits from a second stimulus batch is expected to be less generous.

Equities rose higher in July driven by decent earnings 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 a threat of halting a desperately anticipated economic growth spurt.

Congress sought to diffuse an income cliff as provisional government stimulus benefits expired at the end of July. A second stimulus plan is expected to be composed differently than its predecessor, but also targeted towards small businesses and the unemployed.

Gold and silver both reached new highs in July driven by global pandemic concerns and recent tensions surrounding the relations between China and the United States. Gold surpassed its previous high set in 2011 and silver achieved a six-year high.

Working families are finding it increasingly difficult to work and care for their children at home during the pandemic, especially with school closures.  Although somewhat controversial, the Centers for Disease Control and Prevention (CDC) reiterating 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 risks attributed to shut down schools affect social, emotional, behavioral health, economic well-being, and the academic achievement of children.  On the other hand, many educators are concerned about their personal well-being as the virus does present a greater risk to them.   A teacher friend shared with me the challenge of configuring classrooms to accommodate the suggested physical spacing.  In their view, in many cases, there simply isn’t sufficient classroom space. The word unprecedented comes to mind, but I remind myself that this too shall pass.

 
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 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)

Dictionary:  un·prec·e·dent·ed, adjective.  1. never done or known before

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:

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.

 

 
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 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)

 

 
coffee shops provide a socialization experience that consumers desire

Coffee Drinkers Consuming Less Cups Of Coffee – Consumer Socialization

With the adoption of many work-from-home practices, global coffee consumption has seen a major decline since the onset of the pandemic. With the closing of many dine-in restaurants and coffee shops, the demand for coffee has not been sustained by at-home consumption. The U.S. Department of Agriculture conceives the coffee consumption trajectory to continue declining through the fall of 2020, which would be the first decline in consumption within the last decade.

The coffee shop culture provides a socialization experience that consumers have been driven to for years. Now a decrease in consumption amidst the pandemic has illuminated many consumer preferences. The decrease in sales corresponding to the temporary and permanent closings of many storefronts has drawn many consumers away from participating in consumption with the social aspect being removed. Additionally, consumer fears regarding the virus and contamination have drawn many sales away from these businesses despite gradual transitions back into re-openings and business model reconfigurations. Recent consumption trends pose uncertainty for many growers. The International Coffee Association projects great concern for the livelihood of growers and laborers in foreign 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 as drive-thru restaurants, mobile orders, and store pickups. This transition into new business frameworks along with the rise of popular social media trends could ultimately lend to the survival of the coffee culture and industry. It is projected that along with consumer practices, consumer preferences to coffee consumption will also change as many consumers begin to transition to cheaper and at-home alternatives. (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 further FDA investigations and research have continued. As of late July, the FDA has established a seventy-five product list, a significant increase from the previous nine product list from late June. Given the demands set forth by the Coronavirus pandemic, the FDA claims investigations will persist as quality issues or concerns rise.  I’m not sure about your hand-sanitizer – but my off-brand sanitizer smells like tequila…

The listed products that comprise the FDA list of toxic hand sanitizers result from the toxic substance methanol that many of these products test positive for. Recent findings regarding methanol contamination have revealed the substance’s extreme adverse effects if absorbed, deeming it unsafe for human consumption. The FDA warns against the use of these listed methanol containing products in addition to misleading claims. Claims regarding prolonged protection and specificity pose concern for the FDA, as many of these claims are unfounded. The FDA advises consumers to refrain from purchasing or using products that fall under the recall list. An updated FDA list of these 75 products can be found under the “FDA List of Recalled Sanitizers” on the FDA press release. (Source: Federal Drug Administration)