THE WEEK IN REVIEW: Aug. 16-22

$1 trillion market value increase in two years!
The market was mostly up last week. Initial unemployment claims climbed over 1 million, which wasn’t encouraging, but there were some bright spots. Apple surpassed the $2 trillion market cap valuation, meaning Apple is now bigger than the GDP of Spain, Russia, and Canada. The world’s biggest company by market cap doubled its valuation in two years after becoming the first company to reach the $1 trillion level in 2018.

Big Tech, led by Apple, continued to drive the market upward. Although the Dow was off a bit, the S&P 500 and the Nasdaq were also bright spots. The S&P 500 recovered all coronavirus losses and heralded in a new bull market, while the Nasdaq posted new records. This was the fastest recovery on record and confounded pundits who had said we wouldn’t recover for years.

The recovery is good news if you have a 401(k) or investments in the U.S. markets. The recently strong market recovery is at odds with the underlying economy, which continues to recover at a slower pace, as evidenced by the uptick in unemployment. Other measures – such as manufacturing, the housing market, stronger earnings, and consumer confidence – are more encouraging. As we’ve previously noted, the mayhem of individual states’ reopening plans was going to be messy, and the restart was going to be way more complicated than the initial broad general shutdown. As we head into the election, it’s hard to determine how much of the economic drag is due to real market forces and how much is posturing by various political constituencies positioning themselves for their preferred election outcomes. The markets, at least, are a bit more focused, forward-looking and optimistic, and they seem to point to a more robust recovery than what we are seeing.

Coronavirus aid hurdles still exist
Congress has yet to agree on additional coronavirus relief and continues to bicker. The Democrats’ stance is that they offered their best deal already, while Republicans have offered a more targeted “skinny” package addressing enhanced unemployment, student loan relief, a suspension of evictions for missing rent payments, aid to small businesses and allowing working Americans to keep more of their earnings via a payroll tax holiday. On the Democratic side, the issues that continue to hinder talks are funding for the U.S. Postal Service – which involves funding mail-in balloting and a bizarre mailbox-removal conspiracy – and discussion of Social Security being shortchanged. Can these issues be bridged without both sides giving in on something? Probably not. Congress has vowed to return to continue working on an additional relief package, but it doesn’t look promising, given the chasm between the two parties.

The Federal Reserve released its minutes from the July meeting last Wednesday. The minutes showed that the Fed is not optimistic that the economy will be back as quickly as some hope, driving markets lower in the second part of the week. Despite the downbeat outlook, the Fed continues to be committed to providing the liquidity needed to keep the fledgling recovery afloat.

Party time!
The Democrats held their convention last week in virtual form. It’s hard to gauge how effective the convention was, and we’ll have to see just how much energy it generates. In many ways, a virtual convention is just C-SPAN with a bigger budget or a national version of public access TV. They did make history, as Kamala Harris became the first woman of color to be nominated on a major party ticket.

The convention had a lot of bashing of President Donald Trump but didn’t seem to include many specific policy proposals. The progressive side of the party didn’t feel like they received the amount of time they required and there’s still a lot of work to be done in unifying the party leading up to the election.

Joe Biden’s acceptance speech didn’t offer much by way of specific ideas, either. It remains to be seen if the Democrats will shift from their strategy of limited appearances and few challenging interviews for their candidate. I believe that if Biden wants to build on the momentum a convention is supposed to generate, he will need to get out on the road, meeting the electorate and laying out and defending his proposed policies.

Maybe the Republican convention will provide a different format with more substance this week. But then again, this is a brave new world – and anything can happen.

COMING THIS WEEK

• We’ll see housing data on Tuesday, including Case-Shiller, FHFA house prices and new home sales. Mortgage applications will be released on Wednesday.
• Consumer data will be released throughout the week. We’ll see consumer confidence and investor confidence Tuesday and Wednesday, with the sentiment, income and outlays released on Friday.
• On Thursday, we’ll see the second reading of Q2 2020 GDP. The first reading was -32.9%. Will that number improve?
• Finally, keep an eye on initial unemployment claims on Thursday. A drop below 1 million would be good news while remaining above that level would not be welcomed.

Have a great week!

Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management

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