Stocks opened lower. A down day today would deliver the S&P 500 Index’s first three-day losing streak since March. A potential second wave of COVID-19 and a gloomy economic forecast from the Federal Reserve (Fed) are weighing on investor sentiment amid continued skepticism that the latest rally is justified. The weakness is global, as Asian equities fell overnight, and European equities are down over 3% in midday trading.
Next hike may be 2023. Main message from the Fed at the conclusion of its policy meeting Wednesday: We’ve got your back, and we’re in no hurry to raise rates. At all. The first set of projections (the dot plot) released since December 2019 showed 15 of 17 members do not see an initial rate hike until 2023 at the earliest. For more on the most recent Fed meeting, read today’s LPL Research blog.
World Bank forecasts gloomy, but comparisons provide insight. According to the World Bank’s June global growth update, when combining 2020 and 2021 growth expectations, US growth is expected to lead Japan, while Europe lags. Emerging markets are expected to lead developed by a wider premium than in 2018 and 2019, although much of the strength is in East Asia and the Pacific region, with weakness persisting in Latin America.
OECD leading indicators rebound but no update to outlooks. The June release of the Organization of Cooperation and Development’s (OECD) composite leading indicators showed the start of a potential rebound for all major economies except Japan, although there were no updates to the outlook in the face of COVID-19 uncertainty. China showed the strongest prospect of an early economic rebound.
Sustained international equity outperformance may have to wait. In recent years, international developed equities have tended to outperform the United States during intermittent periods of value stock leadership. We remain skeptical that the latest bounce in value stocks will lead to a sustained reversal in the long-term trend favoring US growth stocks. Year to date, the MSCI EAFE Index return has trailed the S&P 500 by about 8 percentage points, while the Russell 1000 Value Index still trails its growth counterpart by more than 20 percentage points so far in 2020, despite outperforming since May 15.
COVID-19 news. US cases topped 2 million as cases rose 1.06% on Wednesday. Aggregate hospitalizations and deaths continue to fall in the United States, but progress has started to slow thanks to recent spikes in several states. Over the past week, COVID-19 hospitalizations have risen 49% in Utah, 45% in Texas, and 37% in Arkansas. At the same time, hospitalizations in New York, New Jersey, and Connecticut have continued to fall steadily (source: COVID-19 Tracking Project).
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