Market Share Newsletter Vol 2 Issue 21

 

August 25, 2020

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Your 1st Source for market information
groundhogEach day over the past several months seems to have some resemblance to the 1993 movie starring Bill Murray, Groundhog Day, where Murray’s character was stuck reliving Groundhog Day, day after day after day.
 
In this new normal, whether short or long-term, each individual’s “Groundhog Day” is different. In the investment world, it repeats like this: look past the bad news, interest rates remain low, the Federal Reserve says they will do “whatever it takes”, the S&P 500 stays near its highs (or maybe touches new highs), and daily COVID cases persist–but do not shut down the country. The challenge is that the rest of us are living a very different day as millions of people are unemployed and most schools have opened with a variety of tough situations for parents and teachers to endure. These are just two examples of how the market’s “Groundhog Day” may not match real life.
 
What will end the investment market’s “Groundhog Day”? That answer is complex with many factors that could move us out of this cycle. The upcoming U.S. election and the speed of the economic recovery, with or without another stimulus bill, are two noteworthy events that could change the narrative.
 
Both events will impact us, but neither are likely move us closer to what our pre-pandemic lives were like. Until we have a cure or therapeutic means to treat the coronavirus, we need to manage our days and investments in the current environment. While vaccine announcements make great headlines, developments that would positively impact the economy are far off into the future.
 
We will focus on opportunities and act diligently to incorporate them in our portfolios. One example is our reduced exposure to commercial real estate we made months ago in fixed income portfolios. We have also started to increase portfolio weightings in international equities just as we discussed a couple weeks ago.
 
The repeating market activity requires a team dedicated to serving your needs and goals. We will keep pursuing ways to help you meet those goals—whether it be through investment advice or estate and financial planning. We are committed to communicating the developments that you need to know during these times.
 
We are looking toward a bright future and the opportunity to work with such great clients.
 
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Vice President and Senior Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
ClapsaddleE@1stsource.com
Considerations for your portfolio

The Economy

  • Weekly jobless claims unexpectedly increased by over one million in the last report after dropping below one million in the previous week for the first time since the week ending March 13. The latest setback in the labor market’s recovery was likely driven by renewed and strategic shutdowns in certain parts of the labor markets in states that experienced notable increases in virus cases (i.e. California, Florida, Texas, Arizona, Georgia). Consumer confidence declined to its lowest level since May 2014.
  • Existing home sales increased by an annualized rate of 24.7% in July, the largest increase on record. Historically low borrowing costs, demand for homes in suburban communities due to the pandemic, and demand catching up to where it was in February have pushed prices and sales much higher. Housing starts increased by 22.6% over the previous month in July and building permits increased by 18.8%
  • The FHFA (Federal Housing Finance Agency) House Price Index increased by 0.9% in June over the previous month and by 5.7% year-over-year. The forecasted monthly increase was only 0.3% and the 0.9% increase was the largest on record since March 2013. The west coast was the largest contributor to the June increase.
  • Inflation, as measured by the Consumer Price Index (CPI), increased more than expected in July as the major contributors were previously the largest detractors in the depths of the pandemic (i.e. energy, transportation, apparel). CPI increased by 0.6% over the previous month and only 1% over the previous year.
Economic Data: Recent
  Actual Survey Prior
Consumer Price Index (CPI) MoM
0.6% 0.3% 0.6%
Retail Sales Advance MoM 1.2% 2.1% 8.4%
University of Michigan Sentiment 72.8 72.0 72.5
Housing Starts  1496k 1245k 1220k
Economic Data: Upcoming
    Survey Prior
Change in Nonfarm Payrolls   1600k 1763k
Unemployment Rate   9.9% 10.2%
Durable Goods Orders 4.5% 7.6%
Pending Home Sales MoM   2.0% 16.6%


Equities

  • Salesforce, Honeywell, and Amgen will be joining the Dow Jones Industrial Average replacing Pfizer, Exxon Mobil, and Raytheon. S&P Dow Jones Indices, the parent company of the index, stated that the move was “prompted by Apple Inc.’s four-to-one stock split.” The stock prices for the three added companies increased after the announcement.
  • The S&P 500 rose to an all-time high of 3,439 on August 25, as markets have been driven higher by the largest components reaching all-time highs. Apple Inc. reached a $2 trillion market capitalization on August 20—only seven countries now have a larger economy than the value of Apple.
  • Target Corp reported online and same-store sales growth of 24.3% (estimated at 8.6%) for stores that have been open for at least a year in the quarter ending August 1. In the first half of the year, Target had 10 million new digital customers.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,431.3 7.54% 22.77%
Dow Jones Industrial Average 28,308.5 0.78% 12.79%
NASDAQ Composite 11,379.7 27.69% 48.09%
Russell 2000 (small-cap index) 1,568.5 -5.17% 9.20%
MSCI EAFE (developed intl.) 1,905.5 -4.49% 7.38%
MSCI Emerging Markets 533.0 1.03% 16.48%
 

Source: Bloomberg
 

Fixed Income, Commodities and Currencies

  • Bond yields in the United States have remained at a consistent level over the past few weeks as the ten-year U.S. Treasury yield was as low as 0.31% (momentarily on March 9), but has maintained a level between 0.6%-0.7% over the past two weeks. The $15.4 trillion of bonds with negative yields around the world and an accommodative Federal Reserve will continue to keep a ceiling on interest rates for the next few years—only much higher and unexpected inflation could push interest rates up.
  • Based on Bloomberg data through August 24, there have been 177 bankruptcy filings year-to-date for companies with liabilities greater than $50 million. In the entire year of 2009, there were 271 companies within the same parameters that filed bankruptcy.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 0.65% 5.91% 6.01%
B’berg Barclays US Aggregate Bond 1.14% 7.14% 6.99%
B’berg Barclays US Corp.High Yield 5.51% 1.10% 4.64%
B’berg Barclays Municipal Bond 1.24% 3.66% 3.72%
Key Interest Rates
  8/24/20 12/31/19 8/27/15
Federal Funds Target Rate 0-0.25% 1.5-1.75% 0-0.25%
3-Month LIBOR 0.25% 1.91% 0.33%
2-Year U.S. Treasury Note 0.15% 1.57% 0.60%
10-Year U.S. Treasury Note 0.65% 1.92%
2.07%
Prime Rate 3.25% 4.75% 3.25%
Commodities & Currency
  8/24/20 12/31/19 YoY Change
Gold 1,939.2 1,550.6 23.11%
Crude Oil 42.6 61.1 -20.21%
Natural Gas 2.51 2.19 15.71%
Corn 331.8 387.8       -5.98%
Soybean 899.8 943.0      7.95%
USD: Euro 1.179 1.121      6.58%
 

Source: Bloomberg
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested

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