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September 2020
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13


Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79

Macro Overview

U.S. equity indices rebounded in August to pre-pandemic levels that were last reached in early March of this year. The dramatic recovery in equity valuations occurred rapidly by historic standards and was unexpected by many market analysts and economists. 

The Federal Reserve is expected to leave short-term rates near zero for up to five years in order to allow inflation to expand modestly throughout the economy. The Fed believes that inflation will be muted until economic activity picks up again as the effects of the pandemic recede.

The U.S. government mistakenly sent $1.6 billon of stimulus payments to deceased U.S. citizens. The Government Account Office (GAO) reported that the payments were made hastily and without proper verification with other government agency databases, such as Social Security.

The Paycheck Protection Program issued 5.2 million stimulus loans totaling $525 billion through August 8th, when the program closed. Another round of stimulus funding for businesses may be included in a new bill drafted by Congress.  

U.S. consumer confidence fell in August to the lowest levels since 2014, as noted by the Conference Board’s index. Sentiment among consumers regarding employment and business expectations was a key factor in the decline of consumer confidence.

The U.S. dollar fell to a two-year low against other global currencies, as expanding government debt issuance and economic uncertainty regarding the novel coronavirus weighed on the currency. Credit rating agency Fitch Ratings revised its outlook on U.S. government debt from stable to negative, citing ongoing deterioration with public finances and the absence of a credible fiscal consolidation plan.

In response to issues with incomplete data, the U.S. Census Bureau began gathering data designed to identify the financial and social impact of the pandemic on the lives of Americans across the country. The experimental Household Pulse Survey, which is compiled by the Census Bureau, started collecting data in April following the onset of the pandemic.

Data collection efforts by several federal agencies and departments have been hindered by the pandemic, raising questions as to the accuracy of data collection affecting various government indices and economic gauges.

Sources: Federal Reserve, GAO, USPS, Moody’s, Fitch Ratings, U.S. Census Bureau

Over $1 trillion of mortgage bonds have been purchased by the Fed since March

Rates Rose Slightly In August – Fixed Income Update

Interest rates rose slightly in mid-August, following a weaker-than-expected auction for U.S. government bonds. The yield on the 10-year treasury rose from 0.55 in early August to 0.71 in mid-August, representing nearly a 30% jump within two weeks. The rapid rise in rates lifted mortgage rates and other consumer lending rates, which fell substantially beginning in late March. 

The Federal Reserve indicated an extended period of near zero short-term rates over the next five years as it expects inflation to be mild. The announcement sent long-term bond yields higher relative to short-term bond maturities.

Over $1 trillion of mortgage bonds have been purchased by the Federal Reserve since March of this year. The ambitious buying spree is intended to help sustain the housing market as jobs and incomes falter during the pandemic. Lower mortgage rates are expected to remain relatively steady, encouraging homeowners to refinance and buyers to purchase. (Sources: Federal Reserve, U.S. Treasury)

Equity Markets Driven Higher In August – Domestic Market Overview

U.S. stocks experienced an unprecedented recovery from the depths of the market turmoil in March, when the World Health Organization declared that COVID-19 was officially a pandemic. In August, equity values as measured by major indices returned to where they stood before the pandemic. The rebound in equity indices has been one of the strongest in nearly 90 years, propelling stocks to new highs in the past month.

Technology stocks led other sectors, with the widest price performance gap in 30 years. Substantial monetary and fiscal stimulus over the past five months helped elevate stocks, in addition to better-than-expected earnings for various sectors and industries. Some analysts believe that the market has been driven by policy, rather than by economic fundamentals, meaning that interest rate policy and tax legislation are becoming increasingly consequential. (Sources: Bloomberg, Reuters)

Pandemic-Driven Spending May Not Be Consistent – Pandemic Effects

Consumer spending soared in July to a record 8.2%, reported by the Commerce Department, accompanied by an increase in personal income which rose 10.5% in April.

Many analysts and economists believe that spending among U.S. consumers following the onset of the stimulus payments may be misleading, with any increase in spending merely temporary, as the benefits of the stimulus fade. Income figures may also be skewed as stimulus payments and generous unemployment benefits artificially increased incomes for some lower-income families.

Source: U.S. Commerce Department

IRS collected $28 billion in 2010 from audits & only $11 billion from audits in 2019

Fewer Choices Are Here To Stay – Consumer Behavior

In response to the COVID-19 pandemic, choices available to the American consumer choices changed in the realm of diet, food preparation, and lifestyle habits. The transition into at-home cooking as a means of financial saving and risk reduction has expanded through American society and is projected to impart both short-term and long-term effects on consumer choices.

In addition to consumer impact, retailers are also experiencing drastic changes in food choices as a result of the pandemic; grocery stores have reduced food options while large corporate retailers have also transitioned into limited offerings. Consumer option reductions by American retailers have stemmed largely from over-stressed supply chains.

The short-term effects of the pandemic on consumer choices across industries are projected to shift long-term as some companies plan to commit to fewer choices in a post-pandemic world.  Restaurants are reducing menu options to mitigate expensive labor and supply costs that are often required to compete in the food industry. The automotive industry is also feeling the effects of the pandemic, and many automakers have begun the transition to limited supply and variety in hopes to alleviate extraneous costs within the supply chain and to offset decreased sales.

Uncertainty regarding the long-term effects of consumer choices remains, though some retailers are approaching the transition with a view toward permanence and little desire to return to broader product choices. (Sources: U.S. Department of Agriculture; Economic Research Service)

COVID-19 Is Making It Difficult For The IRS To Audit & Collect Taxes Owed – Fiscal Policy

As the pandemic took a toll on income for some companies and families across the country, it also took a toll on U.S. government income. The IRS discloses annually the sources of income collected from taxes. Part of the revenue generated by the IRS is the enforcement of tax collections via audits. The IRS report revealed that the number of audits in 2019 ranked among the lowest in decades for individual returns, the single largest source of income for the IRS.

Fewer audits means less revenue for the U.S. government, which has this year already issued over $3 trillion in debt since March of this year. The IRS collected approximately $28 billion in 2010 from audits, compared with $11 billion collected in 2019.

This year became challenging as IRS employees and agents were removed from the field due to pandemic restrictions. The inability to perform face-to-face audits has introduced significant difficulty for the IRS as it attempts to collect on taxes owed.

Sources: IRS Annual Disclosure Report, IRS Data Book 2019 Release

inflation for seniors is 1.3% versus 1% for the traditional CPI in the past year

Government Data Collection Hindered By The Pandemic – Economic Dynamics

Among the many disruptions caused by the pandemic, government data collection has been hindered considerably. Various agencies and departments of the federal government have relied on face-to-face collection of data for decades as a reliable and validated process of gathering data.

Numerous economic indicators and indices are vital for economists and government officials to decipher the economic condition of the country. The pandemic raises questions regarding whether data collection is flawed and whether certain government provided reports are truly accurate. 

Natural disasters such as hurricanes and fires affected data collection efforts in the past, as face-to-face surveys were delayed or severely limited in scope. The significance of the current pandemic though, has created new and unique data collection challenges.

The Bureau of Labor Statistics has adapted to the new environment by implementing surveys by telephone and by examining publicly available data. Inflation has been difficult to gauge, as random price spikes over the past few months have misled economist and the Federal Reserve. The Consumer Price Index (CPI) not only is the leading indicator for inflation, but it is used to modify tax rates, Social Security benefits, poverty thresholds, and eligibility requirements for food stamps.  (Sources: BLS, U.S. Census, Dept of Labor, Federal Reserve)

Inflation Even Higher For Those Over 62 – Retirement Planning

The Bureau of Labor Statistics (BLS) maintains a segmented tally of inflation for individuals over 62 years of age. This inflation index, known as the CPI-E, is a variation of the traditionally recognized CPI (Consumer Price Index), but with an emphasis on goods and services most typically used by  those over the age of 62. In August, the CPI-E and the CPI reveled an inflation rate of 1.3% for the CPI-E versus a 1% rate for the traditional CPI over the past year.

The modified index has increased at a faster pace of inflation over the past decade than the standard CPI. The CPI-E assigns a larger weight to expenses including as medical services and assisted living. The index was first created in 1987 when Congress directed the BLS to identify inflationary pressures among seniors. The index represents roughly 25% of all U.S. consumers.

Source: Bureau of Labor Statistics