Daily Archives: July 21, 2020

The Markets This Week

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by Maurice (Mo) Spolan, Investment Research Analyst
Equity markets were up mildly last week as investors weighed the continuing surge in coronavirus cases against a couple of promising vaccine candidates. Moderna Therapeutics and Oxford University, the engineers behind the two leading inoculants, both announced last week that their vaccines demonstrate signs of efficacy. Anthony Fauci added that he believes that a vaccine will be approved by year-end, however, the timeframe between a vaccine’s certification of safety and effectiveness, and its mass production and widespread dissemination, remains unclear.

In other news, the world’s largest banks kicked off earnings season by tucking away billions of dollars for expected loan losses over the coming period. Jamie Dimon, the CEO of JP Morgan Chase who is known for his prudence, noted that the past several months has not represented a traditional recessionary environment because of massive government support, and that he expects the economic situation to worsen over the back-half of the year. With this said, stock market analysts polled by Factset expect impacts from the coronavirus to be present in second quarter corporate updates: S&P 500 earnings are forecasted to decline by 44% versus the year-ago period, which would be the largest fall since the Great Recession. In contrast to Dimon’s cautions, analysts expect Q2 to represent the worst for corporate earnings.

VNFA NEWS

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Meet Northeast Community Center – Team VNFA wants to raise awareness for our community partner.
In order to continue providing programs and services to the community, Northeast Community Center depends on donations, grants, and fundraising events. While monetary donations are most needed, they also greatly appreciate donations in forms of food, office supplies, paper products, etc.

Cleaning Supplies (Bleach, Disinfectant, Windex, Wipes, etc)
As NECC transitions into their  next phases and begins to welcome volunteers into our building and eventually welcome clients back, they need to  maintain a high standard of cleanliness and sanitation to ensure safety, especially those who are most vulnerable including seniors and individuals with pre-existing conditions.
DONATE NOW: neccbethlehem.org/get-involved/

LEARN MORE: Meet NECC with Team VNFA (recorded event)

The Numbers & “Heat Map”

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THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association

MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.

US ECONOMY

CONSUMER HEALTH

NEGATIVE

 In June, retail sales increased by 5.4% month-over-month while new home sales were up 55% compared to last year, the largest increase in ten years, as consumers take advantage of historically low mortgage rates.

CORPORATE EARNINGS

VERY NEGATIVE

 Q2 is expected to represent the low-point of corporate earnings during this recession, with profits forecasted to fall 44%, the largest decline since 2008. According to Blackrock, U.S. corporate earnings are unlikely to intersect with the path that they would have taken, had COVID-19 never occurred, until the end of the decade.

EMPLOYMENT

VERY NEGATIVE

 Non-farm payroll increased by 4.8 million jobs in June, led by the Leisure & Hospitality sector, as the unemployment rate declined to 11.1%. However, the unemployment rate remains historically high and is still 7.6% higher than it was in February.

INFLATION

POSITIVE

 The deflationary environment created by COVID-19 should provide additional room for robust stimulus from both fiscal and monetary policy initiatives. However, we will be watching closely in the intermediate term for second and third order effects leading to a return of inflationary pressure.

FISCAL POLICY

VERY POSITIVE

 Unemployment benefits, which have been instrumental in stabilizing the economy, are set to expire at July’s end. Though Congress is expected to pass another round of unemployment assistance, the size and duration of future benefits is unknown.

MONETARY POLICY

VERY POSITIVE

 The Federal Reserve has supported asset markets with unprecedented speed and magnitude in respond to COVID-19. Monetary stimulus is perhaps the primary reason why equity markets have rallied over the three past months.

GLOBAL CONSIDERATIONS

GEOPOLITICAL RISKS

VERY NEGATIVE

 The relationship between the US and China, the world’s two largest economies, was already weakened by the trade war but has deteriorated further as a result of Covid-19. Given both countries’ importance in the global economy, the status of relations between the two superpowers is worth monitoring.

ECONOMIC RISKS

VERY NEGATIVE

 The impacts from COVID-19 were as swift and pronounced as any shock in modern times. Robust monetary and fiscal stimulus stabilized the system, and several measures of the economy improved in May and June. However, economic activity remains well-below that in 2019, and uncertainty remains very high.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

“Your Financial Choices”

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Tune in Wednesday, 6 PM for “Your Financial Choices” show on WDIY: Review of topics covered over the years

Laurie has returned to the studio which means she can take your questions live on the air at 610-758-8810, or address those submitted via  yourfinancialchoices.com.

Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.