Equities continued to move higher amid uncertainty around an extension of unemployment benefits and continued tensions with China. As of the close of markets on Friday, an agreement between the House Democrats and Senate Republicans on a new round of federal stimulus is still trillions apart.
On Saturday after negotiations failed to yield any results, President Trump followed through on his promise to issue executive orders after the collapse of stimulus negotiations with Democrats by: 1) Allocating unused CARES Act funding for states to continue to make enhanced unemployment benefit payments; 2) Deferring payroll tax payments for taxpayers with incomes below $104,000 through 2020; 3) Coordinating the resources of the federal government to prevent evictions; and 4) Continuing student loan deferments. The under-discussed critical question is whether the change in policy will force negotiators back to the table on a larger stimulus package.
In the latest salvo against China, President Trump signed an executive order that imposed a 45-day deadline for TikTok to sell to an American company or cease operations in the U.S. In economic news, the U.S. added 1.8 million jobs in July versus expectations for 1.5 million, dropping the unemployment rate to 10.2%. This week in earnings lead to some large selloffs in technology darlings that beat earnings and provided strong guidance, but could not satisfy lofty expectations. Shares of Fastly Inc., a player in edge computing, fell nearly 20% after revealing 12% of revenues are tied to TikTok and revenue expectations that were only slightly above expectations. Despite growing revenue by 68%, Datadog, Inc. fell sharply after reporting a deceleration in growth on softening public cloud spending. Twilio, Inc. pared its year-to-date gain to 148% after announcing an inline quarter with rising expectations. Industrial stocks were the top performers for the week as additional aid to the airlines is likely and the international travel ban was lifted. Although volatile, market leadership started to slightly shift towards small-caps, cyclicals, and value names before the start of earnings season. Since July 9th, the Russell 2000 has returned 11.6% versus 6% for the S&P 500. For continued follow through, cyclicals will likely need continued improvement in economic activity and a rebound of fundamentals for many of the hardest hit areas of the market.
U.S. Treasury bond yields were higher across the yield curve last week with longer dated Treasury yields gaining more than shorter dated Treasury yields. The week started off with Treasury yields higher on Monday due to strong global manufacturing data. Manufacturing indexes in China, Europe, and the United States showed improvement versus last month. Treasury yields retreated Tuesday as investors turned pessimistic of Congress’s progression on fiscal policy as aid for U.S. citizens runs out. Treasury yields climbed for the rest of the week as positive economic data spurred investor confidence in the U.S. economy. The ISM Non-Manufacturing index rose to 58.1 in July, well above the consensus expected 55.0, signaling an expansion in the U.S. services sector.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments
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