August 3, 2020

It was a pretty wild week in the markets with a lot of news with Q2 GDP being released, a second consecutive week of an increase in unemployment claims, and a lot of earnings, in particular from the largest tech names in the industry. In spite of blowout earnings after the bell on Thursday from Apple, Amazon and Facebook[1], the markets did not take off on Friday as might have been expected, although they did jump at the end of the day to finish positive for the week. My opinion is that many are still waiting on what will come from the Fiscal Stimulus package that is currently help up in Congress.

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

1. The Market

· The S&P was up 1.73% on the week and was a bit all over the place. The market was up early in the week and then struggled later in the week to gain any traction even with the big earnings releases from Big Tech mentioned above until the last hour of trading on Friday.

The Dow was actually down 0.16% for the week as weaker earnings from Caterpillar (CAT) and Boeing (BA) more than offset the positive news from Apple (AAPL).

2. Economic Data

· New claims increased again last week and were just over 1.4 million. We are now at 19 weeks of over 1 million in new claims.

· Continuing claims were up on both a seasonally and non-seasonally adjusted basis to about 17 million. This is a concerning sign that the employment gains we saw in May and June may be stalling out.

· Total unemployment fell to about 30 million. This report is on a 2 week delay from New Claims and a week behind Continuing Claims. With both of those back on the rise, I would expect to see this number move up again next week. The biggest issue with this Total Unemployment report might be seen when the first week in August is reported. If Congress doesn’t act soon and all of those on the Pandemic Insurance fall off, we may see a large drop in this number but that will only be because they are not receiving benefits, not because they are needing the assistance.

· In our last couple of videos and blog posts we have been discussing whether we are in a V shaped economic recovery. On Thursday last week the Q2 GDP Report was released with our economy shrinking almost 33%.

While this was in line with expectations, it is still a pretty shocking number. The Atlanta Fed has released their GDPNow forecast for Q3 and expect an increase of 11.9% from Q2[2]. While that sounds nice, that is a Quarter over Quarter measurement, so it is growth from the GDP in Q2 which was down significantly. When you look at on a Year over Year basis, that would mean they are still expecting much lower GDP in Q3 2020 than in Q3 2019.

· Another measure to keep an eye on is Consumer Sentiment.

We saw good improvement in May and June releases but as other indicators we have been watching, consumers appear a bit wary of where things are going. This is probably for 2 reasons. First, we have seen an increase in COVID cases leading many states to rollback some of the economic openings that were happening. Second, I believe there is some concern on what the next stimulus package will look like.

3. Earnings & Stimulus

· This was a pretty epic week of earnings releasing, culminating with 4 of the largest tech companies (Apple, Google, Amazon, and Facebook) all reporting together after hours on Thursday[3].

· Outside of Google, the reports blew away expectations as the big winners from the changes in our economy due to the virus and shutdowns are becoming more apparent. When you look at the S&P 500 for the year, it is basically flat. When you take out the top 5 tech companies – the four mentioned above and Microsoft – the return on the market is negative for the year.[4]

These 5 companies along with a few other big tech names are driving most of the returns in the market. We have not seen this type of divergence since 1999[5].

· We mentioned last week that the big news for this week would center around earnings and the Stimulus… while earnings headlines did not disappoint, there really was not much movement on the next stimulus package. Indications from Mark Meadows, Chief of Staff at the White House are that the two sides are still very far apart. These situations are often fluid so we can see a lot happen over the weekend but it appears at this point that we are likely to see this drag into next week[6].

Articles of Interest

· We talked last week about gold hitting record prices and it continued its march higher this week, nearly reaching $2,000 an ounce. Many believe that the rising price of gold is due to inflation concerns since the Fed has been busy at the printing press since March. Is there another story that could explain it? When you look at a longer term cycle, gold has been increasing steadily in price since Q4 of 2018, long before the fears of inflation set in. This is a very technical article going deep on while we may see some price inflation on consumer goods in the short term, we may be in a longer term deflationary cycle:

· Here is a good roundup of everything we saw on the earnings front this week:

https://finance.yahoo.com/news/big-tech-earnings-surge-during-013452975.htmkol

· We mentioned above the challenges ahead in passing the stimulus package. Here are where the 2 parties stand and what to expect in the coming days and week:

https://www.washingtonpost.com/us-policy/2020/07/29/trump-pushes-short-term-fix-unemployment-insurance-eviction-moratorium/

· We posted this on our Social Media sites earlier this week but figured I would add it here in case you missed it. With the great weather we are experiencing we are probably all wanting to get out and travel a bit. This article is helpful in thinking about how to travel safely:

https://money.com/how-to-travel-safely-coronavirus/?fbclid=IwAR2XVZ-uNF4VbdIYCX6AnCWnEJYtehrerI8txwV7_gRbcA8S8IAqmCvTcbk

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Non-Financial Story of the Week

We had a busy weekend at the property, building planter boxes for the garden and beginning some plans for a playhouse for the girls that they will help me with!

I am truly blessed to have these 3 ladies in my life, they make me smile and laugh every day (and sometimes yell)!! With everything going on over the last few months, I am lucky to get to spend so much time with them!

Bottom line for the week, clear winners are losers are becoming clear as the economic recovery appears to be stalling. Big tech is likely to remain profitable while retail, restaurants and travel are far away from anything that looks like they are heading back to normal. With rising COVID cases keeping consumers on edge, we may be in for a rough Q3. However, a lot of that could depend on the next stimulus package being negotiated now. While rising debt creates long term challenges, money directly into the hands of consumers goes a long way in alleviating short term fears. We will see if we get a more clear direction this week.

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.

[1] https://finance.yahoo.com/news/big-tech-earnings-surge-during-013452975.html [2] https://www.frbatlanta.org/cqer/research/gdpnow [3] https://finance.yahoo.com/news/big-tech-earnings-surge-during-013452975.html [4] https://www.forbes.com/sites/sergeiklebnikov/2020/07/24/apple-microsoft-amazon-google-and-facebook-make-up-a-record-chunk-of-the-sp-500-heres-why-that-might-be-dangerous/#4275cf594f6b [5] https://www.forbes.com/sites/jamesphillipps/2020/07/27/morgan-stanley-tells-clients-to-reduce-tech-exposure-on-bubble-fears/#77fd073f8cd7 [6] https://www.washingtonpost.com/us-policy/2020/07/29/trump-pushes-short-term-fix-unemployment-insurance-eviction-moratorium/