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Weekly Market Matters 06-26-2020

Weekly Market Matters 06-26-2020

| June 29, 2020
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S&P 500 Falls Back into Correction Territory as
COVID-19 Worries Jump and Social Unrest Increases

• The week started off strong as U.S. stock
markets rose while volatility declined, but the
latter part of the week saw markets dropping
and volatility increasing, mostly due to
renewed COVID-19 worries

• The very-concentrated and very-mega-cap
DJIA dropped 3.3%, followed closely by the
2.9% drop in the S&P 500, the 2.8% decline of
the smaller-cap Russell 2000 and the 1.9%
decline of the tech-heavy NASDAQ

• Of the 11 S&P 500 sectors, the Energy,
Financials and Communications sectors were
hardest hit, dropping 6.5%, 5.3% and 5.2%,
respectively

• The week’s news was dominated by social
unrest in the U.S. and increasing worries about
COVID-19’s resurgence, with COVID-19
impacting investor sentiment more

• Macroeconomic data was mixed, as new home
sales jumped over 16%, existing home sales
dropped, and personal spending jumped over
8%

• Weekly jobless claims dropped by about
60,000, but it’s still a worrying 1.5 million,
above consensus estimates by over 250,000

• The 2-year Treasury yield declined to 0.16%
and the 10-year yield came to rest at 0.65%

• WTI crude fell almost 4% to just over
$38/barrel

S&P 500 Moves Back into Correction Territory

Stock markets traded within a relatively small range this
week, as volatility trended down for the first couple of
days before moving north for the remainder of the week,
ultimately coming to rest about where it started the week.

By the time the week was over, U.S. stock markets had
returned last week’s gains and then some, with growth
stocks outperforming value stocks and the technologyheavy NASDAQ performing better than the other major
U.S. indices by a decent amount.

Close Week YTD

DJIA 25,016 -3.30% -12.3%
S&P 500 3,009 -2.9% -6.9%
NASDAQ 9,757 -1.9% 8.7%
Russell 2000 1,379 -2.8% -17.3%

While the S&P 500 is still inches above that
psychological 3,000-point barrier, this week’s decline did
technically put the S&P 500 into correction territory –
defined as being down by 10% or more from its peak,
which happened in February.

COVID-19 Worries Intensify

Most of the news on the week focused on social unrest
throughout the country as well as renewed threats from
COVID-19. It did not appear that the former impacted
markets at all, but the latter sure did, as investors are
worried about additional lockdowns and further economic
implications. Investors were trying to determine what Dr.
Fauci’s warning of a "disturbing surge" in COVID-19
cases might mean, while also digesting warnings from
various state Governors.

Investors received a lot of news about the housing sector
this week and the data was mixed – which might actually
be considered a positive. On the one hand, existing
home sales were down for the third month in a row, but
on the other hand, new home sales were up in May. But
given the stated margin of error surrounding new home
sales, many are expecting that number to be revised
significantly down in the coming months.

In addition, the notion of another U.S. stimulus package,
as well as a possible extension of unemployment
benefits, was received with guarded optimism.

There was a lot more chatter about trade this week and
most of it can be considered positive. Early in the week
President Trump tweeted that the trade pact with China
remains “fully intact.” But then rumors that the U.S. was
thinking about imposing tariffs on over $3 billion in UK
and EU goods gave investors reason to pause.

Housing Markets Impacted Significantly

The National Association of Realtors released May real
estate data on Monday and reported that:

• Existing-home sales dropped 9.7% month over
month in May, which is the third consecutive
month of declines

• Existing-home sales fell a staggering 26.6% from
a year ago, as all four major regions of the U.S.
recorded declines

• 58% of homes sold were on the market for less
than a month

• Properties typically stayed on the market for 26
days, the same as a year ago

• First-time home shoppers comprised 34% of
sales, up from 32% a year earlier

• Foreclosures and short sales were 3% of sales,
up from 2% a year ago
More Housing Data Challenges
On Tuesday, the U.S. Census Bureau and the U.S.
Department of Housing and Urban Development jointly
announced the following new residential sales statistics
for May 2020:

• Sales of new single-family houses in May 2020
were at a seasonally adjusted annual rate of
676,000

• This is 16.6% (±15.5%) above the revised April
rate of 580,000 and is 12.7% (±23.5%) above the
May 2019 estimate of 600,000

• The median sales price of new houses sold in
May 2020 was $317,900

• The average sales price was $368,800

• The seasonally adjusted estimate of new houses
for sale at the end of May was 318,000, which
represents a supply of 5.6 months

One should pay particular attention to the margin of
error, however, as it is significant. For example, the
statement that “12.7% percent (±23.5%)” means that the
actual percent change that is likely to have occurred falls
somewhere between -10.8% and +36.2%.

Consumer Sentiment Drops

The University of Michigan released its interpretation of
the Consumer Sentiment Index and had this to say:
“Consumer sentiment slipped in the last half of June,
although it still recorded its second monthly gain over the
April low. While most consumers believe that economic
conditions could hardly worsen from the recent shutdown
of the national economy, prospective growth in the
economy is more closely tied to progress against the
coronavirus. The early reopening of the economy has
undoubtedly restored jobs and incomes, but it has come
at the probable cost of an uptick in the spread of the
virus.”

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