Market analysis

8.10.20 | Market News

At a glance

The economy continues to improve as business activity and employment recover. U.S. stocks have performed well during the second quarter earnings reporting period, with companies generally beating low expectations.

-11%

Year-over-year sales of S&P 500 companies during the second quarter, with 89 percent of companies releasing results so far.

“The Information Technology and Healthcare sectors are standouts, with both sectors posting positive sales and earnings growth over year-ago levels.”

- Terry Sandven, Chief Equity Strategist, U.S. Bank

Term of the week

 

Consumer sentiment – A measurement and indicator of the overall health of the economy as determined by consumer opinion. It takes into account an individual's feelings toward his or her current financial health, the health of the economy in the short-term and the prospects for longer-term economic growth.

Global economy

Quick take: The global economy continues its recovery as countries continue to battle the coronavirus pandemic. Purchasing manager surveys indicated accelerating activity on a month-over-month basis for the first time since January. In addition, the U.S. labor market continued to recover, albeit with some signs of slowing momentum.

Our view: We remain cautiously optimistic about the economy’s reopening progress. In the next few weeks and months, the impact of policy — the latest stimulus bill, school reopenings and the November election — will likely play an outsized role in the markets.

Equity markets

Quick take: U.S. equities are inching toward all-time highs as prospects for a COVID-19 solution move forward, despite uncertainty around the duration and impact of the pandemic. Market volatility is likely to remain elevated until a vaccine is developed, manufactured and administered.

Our view: We are retaining our “glass half-full” outlook, bolstered by benign inflation and low interest rates, ongoing monetary and fiscal stimulus policies, medical progress for COVID-19 and favorable price trendlines.

Bond markets

Quick take: Treasury yields remain near all-time lows but increased slightly last week (prices fell) in response to increasing inflation expectations. Corporate and municipal bonds continue to outperform Treasuries.

Our view: Yields on investment-grade corporate and municipal bonds present opportunities for yield relative to Treasuries. Further room for outperformance exists, with cheap financing available for companies and municipalities, economic activity gradually resuming and the medical community racing to develop a vaccine.

Real assets

Quick take: Real assets experienced mixed performance last week, led by the strong performance of commodity-based equities. Real Estate, Utilities and Infrastructure were laggards. Commodity markets continued to move higher.

Our view: The market traded with more of a recovery theme last week, with industrial-related equities (metals and mining, energy, infrastructure) performing better than defensive sectors (Utilities and Real Estate). The continuing recovery in China is generating hopes for a global recovery from COVID-19. A slight pause in the declining dollar, plus declining real yields, also helped sentiment.

This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

Read next

 

 

Markets and Investing
Downside risk: Understand and manage it

Markets and Investing
How diversification in investing may reduce risk

Financial Planning
What should you do with extra cash?

Investing insights

 

Market news
Read our up-to-date reports on economic events and news from the markets.
Continue to hub

4 ways to manage downside risk
As the longest bull run in history ages, some investors are seeking strategies that may help protect their gains through managing downside risk.
Find out more

What to consider before you invest
Investing isn’t a one-size-fits-all activity. Your strategy should reflect your unique goals.
Watch the video