DAILY INSIGHTS
Stocks opened higher. After ending last week on a down note and seeing its three-week win streak snapped, the S&P 500 Index is in the green in early trading this morning. Markets are awaiting the release of the Senate’s stimulus plan—expected in the $1 trillion range—and the start of a big earnings week. Asian markets were mixed overnight, with modest gains in China and Australia, and slight losses in Japan and Hong Kong. European markets are slightly lower in midday trading. Gold rose 2% to a record high of more than $1,940 per ounce, and silver rose 6%.
Solid positive earnings surprises so far. With about 26% of S&P 500 companies having reported, earnings are tracking to a 43% year-over-year decline for the second quarter, the worst since fourth quarter 2009, amid pandemic-related disruptions in economic activity. However, the earnings beat rate (79%) and average surprise (11–12%) are both well above historical averages. The slight increase in forward estimates in July is encouraging (source: FactSet). Over 190 S&P 500 companies will report results this week.
A growth bubble. With the incredible strength in growth stocks this year, and for much of the past decade, many are claiming growth stocks are in a bubble. Although the recent strength has been quite impressive, we don’t believe it’s a bubble like the late 1990s. For instance, these companies are making significant profits and growing quickly, not to mention valuations are much lower. Comparing growth versus value stocks on a relative basis, only recently did that ratio move above the peak from the early 2000s. We discuss this important concept more today on the LPL Research blog.
New highs for gold. The yellow metal is up another 2% this morning, moving to fresh new highs above the previous peak in 2011. US dollar weakness, near record amounts of negative-yielding debt, COVID-19 worries, record monetary stimulus, and US-China tensions are all reasons why gold is up more than 25% this year. We have been bullish on gold this year and believe that the stage is likely set for gold to continue to move higher the remainder of 2020.
Week ahead. The week’s economic calendar is highlighted by second quarter gross domestic product (GDP), which is expected to bring the biggest quarterly decline in economic activity ever recorded at 35% annualized (source: Bloomberg consensus forecast). Other noteworthy data includes durable goods orders, home prices, and consumer confidence. The Federal Reserve’s policy announcement comes on Wednesday.
COVID-19 news. More progress has been made in the United States over the past several days to contain the virus, based on Sunday’s 11% week-over-week drop in new cases, the 1.4% decline in the seven-day average case count (including declines in Arizona, Florida, and Texas), and falling seven-day average number of hospitalizations (source: Johns Hopkins). Outbreak pockets have emerged in Hong Kong, Spain, and Vietnam. Moderna shares jumped after the company received more vaccine funding from the US government.
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