U.S. stocks continued to advance this week. In fact, the S&P 500 Index came within a whisker of reaching a new all-time high! Although the U.K. reported a massive second quarter reduction in GDP, major international indices also moved higher. Continued positive employment data helped to move U.S. markets higher. Russia claimed to have developed a coronavirus vaccine; however, significant questions about their development process have led most of the scientific community to question its efficacy and safety.
This week, the S&P 500 Index gained 0.6% while the Dow Jones Industrial Average rose 1.8%. Since March lows, the S&P is up 53.9% while the Dow has rebounded 53.4%. Unemployment figures for both initial and continuing claims again beat consensus expectations this week. The number of weekly first-time applicants fell below one million for the first time since the pandemic began, while ongoing claims fell to 15.5 million – its lowest reading since early April. Obviously, the numbers are still very high compared to pre-pandemic levels. However, continued improvement in the labor force provides hope for the sustainability of the recovery.
Coming on the heels of the second quarter downturn in U.S. GDP, the U.K. reported an even-larger contraction in GDP growth of -20.4%. Attempting to dig out from this historic drop just adds to the current challenges facing Prime Minister Boris Johnson’s coalition government. As the end-of-year negotiating deadline with the European Union on post-Brexit trade terms nears, the coronavirus crisis seems to have stymied progress between the two sides. Additionally, parallel work on an anticipated bilateral trade agreement with the U.S. has failed to produce meaningful results. Even in the midst of these roadblocks, the FTSE 100 Index (tracking large-cap stocks listed on the London Stock Exchange) ended up higher this week.
With negotiations between Congress and the White House on a new relief bill remaining stalled, President Trump signed several executive actions that temporarily extend a portion of the additional unemployment benefit, provide some measure of student loan relief, limit evictions, and defer payroll taxes through the remainder of the year. Just like the bickering between political parties, the federal government deficit shows no sign of letting up. Through the first 10 months of the fiscal year ending in September, the U.S. government spent $2.8 trillion more than it received.
Inflation moved upwards in July, as prices rose for some larger-ticket consumer goods. However, we’re not overly concerned by this just yet, as we’ve expected some measure of rising inflation as consumer demand recovers from pandemic lows. Our opinion is that this uptick in inflation is an additional promising sign for the recovery, since more consumers appear comfortable enough to resume larger purchases. Even with the increase, core inflation remains below the Fed’s target of 2%, and we would need to see that number increase and stay elevated for several months before adjusting our expectations.
As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.
Nathan Mersereau will continue posting short videos to provide timely insights and advice. We will post links to Nathan’s video updates across all of our social media channels.