Weekly Investment Update

US equity markets advanced last week with the Dow Jones Industrial Average, the S&P 500, and the NASDAQ returning 1.0%, 1.8%, and 4.0%, respectively. The markets were potentially aided by renewed discussion in Washington of an additional round of fiscal stimulus.  The NASDAQ’s outperformance marked a continuation of investors’ preference for growth themes in technology, consumer discretionary, and communication services which have remained resilient or even thrived during the pandemic (e.g., Amazon, Netflix, Zoom).  These sectors returned 2.7%, 4.8%, and 4.7% during the week, whereas more cyclical sectors such as energy and industrials lost 4.7% and 1.4%[1], respectively, potentially a sign that investors are skeptical of a broad economic recovery occurring any time soon.

The week was marred by record numbers of new COVID-19 cases in southern states and resulting concerns that economic reopening plans may be slowed or even need to be reversed.  With little more than a month until schools, colleges, and universities are set to reopen to students after nearly six months, late August and September will be very important barometers for the for the broad economy.  Another semester of remote learning will likely create a challenge to the productivity of parents balancing increased responsibilities at home with employers wishing to return to “normal”.  America’s higher education institutions also face significant headwinds in their attempts to reopen to students.  Increasing costs related to virus tracking and prevention juxtaposed with lower revenue from tuition pressure and canceled auxiliary events may represent the best-case scenario for many schools and their employees, while another semester of remote learning and the potential for significant declines in enrollment and room and board revenue are still a real possibility.

Earnings season begins this week with large financial companies like JPMorgan and Bank of America reporting second quarter results.  According to FactSet, S&P 500 earnings are expected to decline 44% in the second quarter compared to the same quarter in 2019, which would represent the largest year-over-year decline since 2008.  The chart below blends actual results with analysts’ consensus expectations and highlights the significant decline in earnings outlook since March 31 across sectors.

Key Economic Releases This Week

Asset Class Returns

Prices & Interest Rates