Analytics, 29 August 2020
Week 35 in Brief
How did the major indices perform?
U.S. stocks ended the week on a high note with the Dow erasing its 2020 losses to join the S&P500 and the Nasdaq in positive territory for 2020. The gains were supported by positive consumer and income data.
- The Dow Jones Industrial Average closed higher by 161.60 points, or 0.6%, at 28,653.87; the S&P 500 rose 23.46 points, or 0.7%, to close at 3,508.01; and the Nasdaq Composite advanced 70.30 points, 0.6%, to 11,695.63.
- For the week, the Dow gained 2.6%, the S&P 500 added 3.3%, and the Nasdaq was up 3.4%. All three indexes have gained about 8% in August, continuing a trend of August being the best month for stocks in an election year, even if 2020 feels anything but average.
Economic data
- U.S. personal income rose 0.4% in July, while consumer spending was up 1.9%, against expectations. Spending on durable goods is up 12.2%, while spending on services is down 9.3% for a net shortfall of 4.6%. The variation in spending patterns explains part of the disconnect between the stock market and the economy since the former has much less exposure to the service sector than the latter.
- The final reading of the University of Michigan’s August consumer sentiment index came in at 74.1 versus a preliminary reading of 72.8 and up from 72.5 in July.
- On Thursday the Federal Reserve Chairman Jerome Powell announced that the Fed was shifting to a policy of average inflation targeting which would effectively see policymakers end the practice of preemptively hiking interest rates to stave off inflation.
Stocks in focus
- Bullish investors were strong on Tesla and Apple whose stocks were being split this week. Both stocks begin trading on a split-adjusted basis on Monday, August, 31.
- Coca-Cola on Friday announced a reorganization and said it would offer voluntary job cuts to 4,000 workers in the U.S., Canada, and Puerto Rico. Shares gained 3.3%, closing at $49.83
- Shares of HP rose 6.2% after reporting fiscal third-quarter sales that exceeded Wall Street estimates by $1 billion, boosted by a pandemic-inspired jump in personal-computer sales. HP closed trading at $19.85.
European stocks slipped on Friday as investors dumped this year’s outperformers including technology and healthcare stocks and bid up banking shares after the U.S. Federal Reserve unveiled its new policy framework.
- Shares in London lead the region.
- The pan-European Stoxx 600 index slipped 0.5%, but still ended the week about 1% higher after signs of progress in COVID-19 treatments and vaccines spurred optimism earlier in the week.
- In London, the FTSE 100 is down 0.61% while Germany’s DAX is off 0.48% and France’s CAC 40 is lower by 0.26%.
- Technology stocks which have surged about 11% this year, were down 0.8%, and the healthcare index fell 1.1%.
- The banking index rose by more than 1.7%, following comments from the Fed that suggested interest rates are likely to remain low for some time.
- France’s second-quarter GDP was confirmed at -13.8% while France reported that household consumption rose 0.5% in July from the previous month. In Spain, retail sales dropped 3.9% year-on-year in July, a slight improvement from the previous reading.
- British Gas owner Centrica rose almost 5% to the top of the pan-European benchmark, despite news that British Gas paid a total of £1.73 million ($2.3 million) for mishandling a change in a top-up provider for prepayment meters, according to Reuters.
- Rolls-Royce said it would sell assets in an attempt to raise £2 billion. Shares fell by about 3%, closing at GBX 241.10.
Asian markets finished mixed as of the most recent closing prices.
- China’s Shanghai Composite gained 1.59% and Hong Kong’s Hang Seng rose 0.61%. In Japan, the Nikkei 225 lost 1.41%.
Commodities
- Oil futures ended modestly lower Friday but tallied a weekly gain. West Texas Intermediate (WTI) crude for October delivery fell 7 cents, or 0.2%, to settle at $42.97 a barrel on the New York Mercantile Exchange. Based on the front-month contracts, prices saw a weekly climb of 1.5%, which represents their fourth weekly rise in a row.
- October Brent crude, the global benchmark, lost 4 cents, or 0.09%, at $45.05 a barrel on ICE Futures Europe, ahead of the contract’s expiration at Monday’s settlement. For the week, front-month contract prices climbed by 1.6%.
- Gold futures rose $42.30, or 2.2%, to settle at $1,974.90 an ounce.
- The yield on the 10-year Treasury note was down 2 basis points at 0.738%. Bond prices move inversely to yields.
Currencies
- GBP rose above $1.33 for the first time in 2020 and touched an eight-month high as USD fell across the board following the Fed’s announcement on interest rates.
- The ICE U.S. Dollar Index slumped 0.7% at 92.325.
Next week
- Two market favorites, Apple and Tesla begin trading on a split-adjusted price basis on Monday.
- Friday’s August jobs report is the big event in the week ahead, and the market is already speculating it could be weaker than the 1.4 million jobs expected.
- Comments from Fed officials will be watched closely for further clarity on the new policy to target average inflation around 2%, meaning inflation could run hot temporarily.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.