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Fasten Your Seatbelt

Buckle – Up!

Stocks were mixed last week amid a busy week of earnings, some troubling economic data, and seemingly little progress on a new fiscal stimulus package.

Stocks rode a roller coaster last week, reacting to a conflicting stream of corporate events and economic data.

Investors were optimistic on Monday about the ability of mega-cap technology companies to thrive in an uncertain economy, but worried on Tuesday about pending Congressional testimony involving the CEOs of these firms.

On the economic front, a strong June durable goods orders report on Monday bolstered investor sentiment. But the optimism faded on a disappointing jobless claims number and a troubling second-quarter GDP number that—while anticipated—was a bit unsettling.

Following some strong earnings results from the mega-cap technology companies, stocks managed to rally in the final hour of trading on Friday. Overall, companies continued to outperform (the lowered) expectations, but are still delivering above expectations.

U.S. Dollar Continues Its Decline

Since peaking in mid-March, the U.S. dollar has dropped nearly 9%. Some of the potential beneficiaries of a weak dollar are global American businesses whose products and services become less expensive in overseas markets. 1

Conversely, international companies may suffer lower sales in the U.S. as their products become more expensive. It’s a mixed bag of potential outcomes, but Wall Street has become more and more focused on the dollar’s trajectory.

Election Predictions

In 20 of the last 23 presidential elections, the S&P has accurately “predicted” the winner of the election, based on the price return of the S&P500 in the three months leading up to the election. The methodology is that if the price return in the preceding three months is positive, the incumbent party wins and if the price return is negative, the incumbent party loses. The “clock” has officially started.

Final Thoughts

Today is the first trading day in August, which has historically been a particularly volatile month. Statistically August – October has been the toughest part of the trading year since 1928. For instance, in 2019, the S&P 500 posted moves of more than one percent in 22 trading days. 2

One of the possible reasons is that many traders are away on vacation, resulting in light volume, which may amplify market volatility. But this year, it’s uncertain whether traders will be away on vacation due to the pandemic. Should markets become volatile in the weeks ahead, investors may want to remind themselves of the seasonal trends that may be at work.

THIS WEEK: KEY ECONOMIC DATA

Monday: Purchasing Managers Index (PMI) Manufacturing Index. Institute for Supply Management (ISM) Manufacturing Index.

Wednesday: Automated Data Processing (ADP) Employment Report. Purchasing Managers Index (PMI) Services Index. Institute for Supply Management (ISM) Non-Manufacturing Index.

Thursday: Jobless Claims.

Friday: Employment Situation Report.

Source: Econoday, July 31, 2020

The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THIS WEEK: COMPANIES REPORTING EARNINGS

Monday: The Clorox Company (CLX), American International Group (AIG).

Tuesday: The Walt Disney Company (DIS), Twilio (TWLO), Prudential Financial (PRU), Emerson Electric (EMR).

Wednesday: CVS Health (CVS), Humana (HUM), Regeneron Pharmaceuticals (REGN), Wayfair (W).

Thursday: Bristol Myers Squibb (BMY), Booking Holdings (BKNG), Becton Dickinson (BDX), T-Mobile (TMUS).

Source: Zacks, July 31, 2020

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


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[1] Reuters.com, July 28, 2020

[2] CNBC.com, August 31, 2019

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