Stocks edging lower after Wednesday’s record. In the last hour of trading Wednesday, the S&P 500 Index traded above its all-time record closing high of 3386 set on February 19 before fading in the closing minutes to end a bit below it. Stocks are not moving much this morning as market participants remain focused on negotiations—or lack thereof—in Washington, DC. Asian markets were mixed with little movement in China’s Shanghai or Hong Kong’s Hang Seng, while Japan’s Nikkei rallied 1.8%. European stocks are slightly lower in midday trading.
Jobless claims edged lower. Filings for initial jobless claims came in below expectations at 963,000 for the week ending August 8, the first reading below 1 million in 21 weeks, and nicely below the prior week (1.19 million) and Bloomberg’s consensus (1.1 million). Continuing claims also delivered a positive surprise at 15.5 million for the week ending August 1 (they are reported with a one-week lag), below consensus estimates at 15.8 million (source: US Bureau of Labor Statistics). The improvement is encouraging, but claims remain above pre-pandemic record highs and still support the need for additional stimulus to keep the economic recovery on track.
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Chart watch. We continue to follow high-frequency data to assess whether the recovery remains on track or if it has been derailed by COVID-19 outbreaks in parts of the country. We look at five charts that illustrate the economic recovery remains on track and help explain why stocks continue to do so well despite such difficult economic conditions later today on the LPL Research blog.
Most severe recessions in Europe; less so in Asia. A review of the peak-to-trough declines in gross domestic product (GDP) among the major global economies revealed that contractions have been steepest in Germany, Spain, and Italy, among the countries harder hit by the pandemic. China, Japan, and Australia generally have contained outbreaks more effectively and experienced less severe recessions. The United States is somewhere in between. Given the concentration of Asian countries in the emerging markets universe, we expect developing economies to experience smaller economic contractions in 2020 than advanced economies.
Warming up to developed international equities. We continue to prefer US equities over their developed international counterparts. However, US dollar weakness, attractive valuations, relative success containing the virus, and bold stimulus in Japan have collectively closed the gap enough that we have begun to consider selectively reducing the size of our tactical underweight allocations in some model portfolios.
Technical Update. After seeing a brief rotation into cyclical value, growth equity resumed leadership on Wednesday amid new all-time highs for semiconductors. All other sectors were positive, though financials took a breather despite the continued rise in bond yields. As technology resumes leadership, the S&P 500 sits within 6 points of the February 19 closing high of 3386, with futures pointing modestly higher this morning.
COVID-19 news. The trend in new cases and hospitalizations in the United States remains lower, although the drop in cases—down 6.3% week over week based on the seven-day average—should be viewed skeptically given fewer tests. According to the COVID Tracking Project, after averaging 716,000 in August, tests administered fell below 500,000 Wednesday for the first time since June 23. Death rates have leveled off, but tragically have remained above 1,000 per day on average over the past week.
Keeping you up to date. LPL Research’s former weekly round-up newsletter has merged into the Friday Daily Market Update effective this Friday. Look for a review of each week’s top publications Friday mornings.
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