US stocks opened slightly higher. US stocks are adding to Wednesday’s gains this morning, led by technology and following more strong gains in China. The Shanghai Composite rose 1.4% overnight to register its eighth-straight positive session. European markets are higher, with Germany getting a boost from well-received earnings from software giant SAP.
Emerging markets making a strong run. The MSCI Emerging Markets (EM) Index is up 15.6% since May 28, well ahead of the S&P 500 Index (4.6%) and the developed international MSCI EAFE Index (4.2%) for that same period. China’s latest rally has driven more than 60% of EM’s gains, supported by China’s relatively stronger economic growth outlook and successful virus containment efforts.
Emerging markets’ relative strength supported by earnings. As second quarter earnings season approaches, US and EM earnings estimates continue to hold up relatively better than developed international. EM earnings are expected to fall by 13% in 2020, less than half the 29% decline expected in developed international markets, supporting our preference for emerging markets over developed international stocks (Source: FactSet).
Jobless claims improve but remain stubbornly high. Filings for initial jobless claims totaled 1.31 million for the week ending July 4, below Bloomberg’s consensus forecast of 1.38 million and down from a revised 1.41 million for the prior week. Reported with a one-week lag, the continuing claims number dipped from a revised 18.8 million to 18.1 million. While fresh filings for unemployment claims have fallen 14 straight weeks from a peak near 7 million in late March, the gradual decline in recent weeks and still very high number of unemployed point to a long road ahead for the US job market to fully recover (Source: US Bureau of Labor Statistics).
Worry for the bulls. The S&P 500 was down 4% the first six months of the year in 2020. Historically, when stocks were lower in the first half of the year, they were higher the rest of the year only 52% of the time—and up only 1.2% on average. Numbers are much stronger when stocks are higher to start the year. We discuss this in more detail later today in the LPL Research blog.
Coming July 14. LPL Research’s Midyear Outlook 2020: The Trail to Recovery reviews where we’ve been in 2020, where we may be heading, and the path that will take us there. Our special elections section explains how stocks and the economy may predict the next president. Look for the interactive digital version, a streamlined printer-friendly version, and supporting marketing collateral July 14.
COVID-19 news. Total cases in the United States surpassed 3 million Wednesday. The daily count remains near crisis-high levels of approximately 60,000 and rose 14.5% week over week. The weekly increase may have been depressed by less testing ahead of the July Fourth holiday, but the seven-day average increase of 20.6% is well below the June 28 peak of 43.7%, according to Johns Hopkins data.
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