June 29, 2020 - Market Update

Stocks opened higher following last week’s rout as investors weigh the increase in Coronavirus cases against extra liquidity in the markets from central bank and government stimulus programs.  Over the weekend, the World Health Organization reported a new single day record as global deaths exceed 500,000 and the total number of confirmed cases is over 10 million.  Several states in the south and west have imposed new restrictions and are holding back from anticipated reopening plans.  Fed Chairman Powell and Treasury Secretary Mnuchin will testify before the House Financial Services Committee later today regarding a response to the Coronavirus pandemic.

Bonds opened roughly unchanged this morning.  The 10-year Treasury is yielding 0.64%.  Contract signings to purchase previously owned U.S. homes surged in May by the most on record as mortgage rates fell and some states began to reopen from Coronavirus lockdown.  The National Association of Realtors’ index of pending home sales increased 44.3% to a three-month high of 99.6, after falling in April to the lowest level in records back to 2001.  The advance adds to signs the residential  real estate market is snapping back faster than most of the economy after the typically robust spring home-selling season was interrupted amid the shutdowns.  Mortgage rates have dropped to the lowest on record, helping to stabilize demand though the industry may be challenged by high unemployment and lingering health concerns.

This will be a deceptively informative week for financial markets.  The biggest consideration continues to be the exponential growth of COVID cases in several states and concern about exponential growth in other states.  While CA, FL, TX, and AZ are in the spotlight, other states that have begun to ease quarantine measures are worried they’ll follow a similar path.  If they do, this would be the week where that would become more apparent.  The most logical result would be more “pulling back” in stock prices and bond yields. 

COVID cases (and yes, the market is smart enough to account for increased testing) may be the biggest market mover, but it’s not the only one.  Economic data is a natural counterpart to case counts (but the fear is that as case counts rise, econ data may change its tune from “recovering” to “relapsing”).  By the end of the week, we’ll have Chicago PMI, ISM Manufacturing PMI, ADP Employment, and the big jobs report, just to name a few of the highlights.

Notably, the jobs report will hit on Thursday morning instead of the typical Friday.  This is due to Friday being the observance day for Independence Day.  In addition, bond markets will close 3 hours early on Thursday, making for a condensed trading window following the jobs data.

Last but not least, it’s “month-end” and also the end of the quarter for financial markets.  This can bring additional seemingly random movement to both stocks and bonds as money managers are required to adjust their portfolios to match the decisions made by account-holders and the changes in the published benchmark that the fund adheres to.

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