August 10, 2020

The market marched higher through most of the week with limited headlines driving the results and more seems to be momentum on the upside at this point. We did see a bit of volatility late in the week as the market digested a slightly better than expected employment report for July while waiting for the next COVID stimulus package to be passed.

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

1. The Market

· The S&P was up 2.59% on the week with a pretty steady march upward with fewer big name earnings releases this week and most of the focus on the July employment report and the Stimulus Package negotiations.

2. Economic Data

· New claims increased again last week and were just under 1.2 million. We are now at 20 weeks of over 1 million in new claims. This was a positive shift lower from the increases we saw in the previous 2 weeks.

· Continuing claims had a relatively large move lower, dropping to about 16 million. This is also a positive sign that we hope to see become a larger trend.

· As expected from last week, Total Unemployment jumped back over 31 million. Due to the 2 week delay on this report, it was easy to predict that this one would be back on the rise and may see one more week of increases here.

· One of the bigger headlines from late in the week was the July Employment report being released Friday morning.

It showed that about 1.7 million jobs were added vs an expected 1.4 million. This was obviously good news that the report was better than expected but we still have an unemployment rate over 10% and there seems to be a slowing of the trajectory on new and continuing rising concerns and new state shutdowns from COVID that will continue to impact employment going forward.

· While most of the numbers we have discussed so far have been at least somewhat positive, this chart should provide some pause. As of a July 21 Pulse Survey from the US Census Bureau, 35% of those surveyed expected a loss of employment income in the next 4 weeks. This survey was steadily declining until mid-June and has started to head back up as COVID cases and shutdowns are back on the rise. Something to keep an eye on in the coming weeks.

3. COVID Stimulus

· We were waiting all week for an announcement on a deal for the next round of stimulus to combat the fallout from COVID and mostly got headlines about how far away the 2 sides are from a deal. The $600 extra benefits have now stopped, and both sides seem to be dug in on their positions. Over the weekend, President Trump signed Executive Orders to re-instate the extra benefits at $400/week and to delay payroll taxes for those making less than $100,000 per year until the end of 2020.

There are a lot of questions whether the Executive Branch has the authority to implement these orders, but it definitely puts Congress in an interesting position to argue against putting money in the hands of those that need it the most while they continue to debate. A bigger picture concern is that if the President is able to lower taxes through Executive Order, that would leave the door open to raising taxes in the future as well. This is a dangerous precedent and if additional funding is going to be passed and taxes are going to be changed, it should come from Congress.

Articles of Interest

· Stimulus – This article goes deeper on where the two sides currently agree and where they are apart in the current negotiations.

https://www.cnbc.com/2020/08/07/coronavirus-stimulus-updates-relief-bill-stalls-trump-mulls-executive-order.html

· Earnings Estimates – We are now moving into the latter half of earnings season with most of the major companies already reporting. Of the 385 S&P members to report so far, 80.5% have beat EPS estimates despite results being 35% lower than the previous year. So just because all of these companies are technically beating earnings does not mean that they are nearly as profitable as the previous year. However, with all of these earnings beats, overall future estimates are increasing. This provides some confidence that the market may have room to continue moving higher.

https://www.nasdaq.com/articles/earnings-estimates-are-going-up-2020-08-05

· Innovation History Lesson – I thought this was an interesting article looking back at the history of innovation in previous centuries, including a focus on electric cars that dominate the market in the late 1800s until the price of oil/gasoline became low enough to overtake the market. That part of the history is another article all of its own but the point of this one seems to focus on Tesla and the many companies that are trying to live off of their jump in value. History has shown that the companies that follow don’t often see similar success.

Non-Financial Story of the Week

Another week and another massive haul of blackberries from our property. I don’t think I can get sick of them and our youngest daughter, Lindon, could definitely live off of them! There are so many ways to enjoy them and last week I got to feast on blackberry pound cake as well as some delicious cobbler baked up by my favorite personal chef (and amazing wife), Val!

Bottom Line

We are in wait and see mode on the next round of stimulus and the impact that might have on the direction of the economy. Will the V-shaped recovery materialize or will we data begin to flatten or get worse again? And even if the economy is not recovering as fast as many expect, will it matter with many expecting a vaccine soon that could be the key to unlock the upside in the economy that we have seen in the stock market. We still believe caution is needed right now while also looking for opportunities in the market that can do well and have made recent adjustments to our portfolios to reflect that, adding additional gold and some technology and narrow emerging market investments to many of our models. We will continue to evaluate the economic and market climate constantly to determine the best approach.

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.

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