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Market rallies last week as earnings come in strong. Record Plunge in US GDP aligns with the rest of the world.

by Fortem Financial August 3, 2020

Last week, equities were positive as mega-cap technology stocks led the way with a slew of strong quarterly earnings announcements. The S&P 500 index rallied 1.5% while the Nasdaq Composite index was up 3.5%.

Looking ahead to next week, Bloomberg expects 133 names in the S&P 500 index to announce quarterly results. As earnings season continues, equity markets look to learn more about how much COVID shutdowns are harming U.S. companies.

U.S. real GDP plunged in 2Q, falling at a post-war record -32.9% q/q annual rate. German GDP also declined -10.1% q/q, or a -35% q/q annual rate in 2Q. The euro area overall showed similar weakness. In a globally integrated economy, there was no avoiding the economic hit in 2020. Economic normalcy is not likely until people feel safe again.

2Q of 2020 was known to be weak because of the “Great Lockdown” as the IMF termed the health emergency. The last several months have seen a bounce. But in recent weeks the timely data is weakening again, especially in the U.S. where the virus has continued to spread. Initial jobless claims rose w/w to 1.4 million in the July 25th week and continuing claims rose to 17.0 million in the July 18th week.

Timely data that we monitor (eg, mobility numbers, restaurant reservations, TSA traveler stats, the NY Fed weekly index) have generally faded in July.

U.S. personal income declined -1.1% m/m in June, after the -4.4% decline in the prior month. Yet consumer spending increased +5.6% m/m, and the saving rate declined (though it remained elevated at 19%). Federal transfers have been critical.

Consumer confidence in July dipped in the U of Mich survey, falling to 72.5. The Conf Board survey was also weak. There remain pockets of strength (eg, the Chicago PMI rising to 51.9 in July, U.S. durables orders up +7.3% m/m in June, pending home sales up y/y), but consumer spending is still the bulk of U.S. GDP.

We believe an additional fiscal stimulus bill will be forthcoming & patch the renewed weakness, but this is still being debated in D.C.

The FOMC last week reiterated their extensive support for the economy by leaving rates near zero & extending their tools. Fed Chair Powell reiterated that he’s “not even thinking about thinking about raising rates.” The Fed statement noted that “economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year … The path of the economy will depend significantly on the course of the virus.”

It’s been made clear the Fed has “lending not spending” powers. Loans have to be repaid & the Fed cannot fix a solvency problem – that’s a fiscal policy decision. The debate in Congress is ongoing, as this is the best way to help particular groups that need a grant. The Fed remains all in, but monetary policy is really the supporting actor for the next several months. They are keeping the economic disruption from cascading through credit channels, but they need help.

Bottom line: mission not yet accomplished. Policymakers’ jobs do not look complete yet, with unemployment still high & turning permanent. All eyes remain on the 2H D.C. fiscal bill, which we believe will be sizeable (~$1.5 trillion) and completed soon.
Source: Strategas


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

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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