S&P 500 Index: 0.2%
Dow Jones Industrial Average: 0.1%
Nasdaq Composite: 0.8%
US and International Equities
Markets generally finished higher this week, the third straight weekly gain for the S&P 500 Index and capped off by a strong retail sales report that helped give stocks a boost on Friday. Gains came despite ongoing investor concerns related to an increase in COVID-19 cases in the United States—and even more so in Europe—as well as Washington, DC, gridlock on the stimulus front. Large cap growth topped its value counterpart while technology bested all sectors for the week.
Fixed Income, Currencies, and Commodities
The 10-year US Treasury yield currently sits below inflation, as measured by the core Consumer Price Index (CPI), making the real rate (the rate accounting for inflation) negative. Once a relative rarity, negative real rates have become more common, occurring 37% of the time since the start of 2011. Nevertheless, current extremes are still unusual, and even reversion to the average over that period would push the 10-year Treasury yield to just over 2%, although that would likely take several years. For more on negative real rates and their impact, see the October 19 LPL Research blog 5 Charts We Are Watching
Bonds, as represented by the Bloomberg Barclays US Aggregate, finished higher, while the 10-year Treasury finished modestly lower. Commodities had posted mixed results to end the week. Oil and natural gas finished higher, while precious metals were lower, with silver in particular falling over 4% on the week.
US and International Economic Data Recap
Retail sales were robust in September, rising 1.9% month over month compared to Bloomberg economists’ median expectation of 0.8% (source: US Census Bureau). The increase was another data point supporting a more robust than expected third-quarter rebound from the COVID-19 recession. Delayed back-to-school spending may have created seasonal distortions in the data, as September is usually a weak month following back-to-school spending in August. The Federal Reserve Bank of Atlanta’s gross domestic product (GDP) forecasting model estimated annualized GDP growth of over 30% in the third quarter before even taking this report into account.
“Any way you slice it, this was a solid report that was more than just e-commerce and housing booms,” noted LPL Equity Strategist Jeffrey Buchbinder. “Sales in September were up 7% year over year, which is remarkable after one of the deepest recessions ever, while COVID-19 continues to hamper spending in certain areas, even though some back-to-school sales were likely delayed into September.”
Weekly claims for unemployment were reported at over 895,000 (source: US Department of Labor), above Bloomberg analyst expectations for 825,000 and the highest weekly level since late August. However, continuing claims fell more than expected to 10 million. With California’s data remaining frozen at its prior level, the sharp rise in jobless claims confirms that the job market rebound continues to fade following the weaker than expected payrolls gain in September.
Next week, the following economic data is slated to be released:
- On Monday, we get the October National Association of Home Builders (NAHB) Housing Market Index.
- On Tuesday, September building permits and housing starts will be published.
- Wednesday is all about the Federal Reserve (Fed) Beige Book.
- Thursday provides investors with another anticipated weekly initial unemployment claims report. Moreover, we will receive data on last month’s home sales and leading indicators.
- We end the week with October’s US Purchasing Manager’s Index (PMI) from Markit for manufacturing and services on Friday.
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