Market falters late in the week on worse than expected earnings and unemployment numbers

July 27, 2020


As we predicted in last week’s blog, the market was waiting on more corporate earnings and stimulus news. While we got some earnings, we will have to wait on the stimulus package but we do have some insight as to what is being proposed.


Here are the top three things we’re covering this week’s blog:


1. The Market

· The S&P fell -0.42% but it wasn’t a clear path to get there. It was up early in the week on vaccine hope but came crashing down on Thursday and Friday from a combination of worse than expected unemployment data and earnings guidance from some of the larger tech names.


The Nasdaq finished the week down -1.52% as the tech heavy index that had been outperforming since March has taken a breather.


2. Economic Data

· New claims increased for the first time since March to 1.4 Million. This was a considerable jump from previous weeks and the highest value of July. This was the first increase in new claims since late March.


· Continuing claims came in lower at 16.19 Million which is a hopeful sign as this number has come down a good amount in the last couple of weeks but most of that was seasonal adjustments as the July 11 number is almost identical to the June 27 number on a non-seasonally adjusted basis.


· Total unemployment fell slightly to 31.8 Million. This was a drop of just over 200,000 which is unfortunately more like a rounding error at this point. As we alluded to last week, given the high level of continuing claims, we do not expect this number to move much in the near term.


· In last week’s Market Update Video we covered some different views on whether we are in a V Shaped economic recovery or not. One chart for this week is gasoline demand. While demand shot up quite a bit as states began to open back up, we are starting to see a level off and drop in demand gain. We will need to watch and see whether this is short term or a longer term trend.


3. Earnings & Stimulus

· Last week we saw more large companies report earnings. While Tesla and Microsoft got the biggest headlines, the overall theme was relatively consistent throughout. Many companies reported better than expected earnings but anticipated a lot of trouble to come. As a result, we saw a lot of quick and volatile moves in the market as investors were unsure of how to price in the outlook.


· With the extra unemployment benefits ending at the end of July, Congress spent much of last week debating a second stimulus plan. Despite not coming to an agreement this week, they remained optimistic that a plan would be released soon. However, based on early releases, it appears that the biggest cut in the new package will be the level extra Pandemic Unemployment assistance there will be. Check out this article that we highlight below.


Articles of Interest

· Are we all Gold Bugs now? In most of our investment models we added GLD, an ETF that tracks the price of Gold as a hedge to all the volatility we were seeing in the markets. Gold has gone up significantly since then and may have a lot more room to go from here –

https://www.marketwatch.com/story/gold-rides-to-a-record-with-prospects-for-2000-an-ounce-stronger-than-ever-2020-07-24 https://www.marketwatch.com/story/gold-rides-to-a-record-with-prospects-for-2000-an-ounce-stronger-than-ever-2020-07-24


· What will the next round of stimulus look like? While we do expect a new package to be approved, it is not likely to provide the same level of liquidity that the first round did in March. Here is what has been proposed so far –

https://www.cnbc.com/2020/07/24/stimulus-checks-how-soon-to-expect-a-second-round-of-1200-payments.html


· Is trouble lurking ahead? While many companies are reporting better than expected – meaning they weren’t quite as bad as expected, the guidance going forward has been troubling. This article is a good summary of what we saw this week.


https://www.investors.com/news/stock-market-rally-china-tensions-tesla-intel-amid-microsoft-chipotle-earnings/


Non-Financial Story of the Week

Our weekend was spent mostly outside in the lovely Pacific Northwest summer weather. On Saturday we were finally able to get together with some of our closest friends to celebrate a crazy coincidence of birthdays. Our oldest daughter, my best man’s daughter, and his sister’s step son (Max, who now works for us) all have the same birthday, May 31st. We typically get together every Memorial Day weekend to celebrate but we had to delay it with everything going on. Thankfully we were finally able to get together and celebrate.


Bottom line for the week, with the Congress fighting over the next stimulus package, we are already in a position where there will likely be delays in whatever new funds are approved being sent out. This could lead to some challenges in August for those dependent on those checks. We will also continue to see Q2 earnings being released and need to focus on their guidance going forward. Finally, the unemployment numbers will need to be watched closely as states have started to shut down or pull back from opening up again due to COVID and we could see a second wave of unemployment claims. While the recover has been good up to this point, it appears we are still in the middle of this and remain cautious in our investment approach.


If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to info@konvergentwealth.com or calling us at 253-236-7000.

Homer Smith | 3010 Harborview Drive, Suite 202, Gig Harbor, WA 98335 | (253) 236-7000

David Stuehling | 2754 NW Crossing Drive, Suite 204, Bend, OR 97703 | (541) 210-5600 

 Melissa Cournyer | 3010 Harborview Drive, Suite 202, Gig Harbor, WA 98335 | (253) 236-7000 

 

Investment advice offered through Integrated Financial Partners, doing business as konvergent wealth partners, a registered investment advisor.