Stocks erased early-week gains to finish the week negative as tensions between the U.S. and China continue to escalate, and after a number of companies reported disappointing quarterly results. Additional government stimulus and ongoing accommodative central bank monetary policy are helping to support stock prices, along with housing data that has largely seemed immune from the effects of the pandemic. A mixed unemployment report tempered expectations for a V-shaped recovery, as first-time benefit claims rose as some states paused or rescinded reopening plans.
For the week, the S&P 500 Index lost -0.28% while the Dow Jones Industrial Average declined -0.76%. Year to date, the S&P is down -0.47% while the Dow has contracted -7.25%. European Union countries agreed to an additional €750 billion of economic stimulus – including the historic first issuance of “common debt” that is the shared responsibility of all member nations. While we still await a compromise between the White House and Congress on a new round of U.S. stimulus, there is a high likelihood of another spending agreement to provide additional support to affected citizens.
Initial unemployment claims increased this week to 1.4 million, while continuing claims declined by a million from last week, to 16.2 million. The differing results reveal the labor market’s struggle to return quickly to pre-pandemic record employment levels. The enormous number of unemployed workers continues to decline as businesses reopen; however, there is the potential for jobless claims to again rise as states pull back from reopening plans. This back and forth will likely continue until an effective coronavirus vaccine is available.
Sales of existing homes were up more than 20 percent in June, compared to May’s level. The pandemic does not seem to have deterred people from house shopping; in fact, the combination of record low mortgage rates and the growing trend of working from home has led many people to search for new properties.
The conflict between the U.S. and China continues to simmer. This week, the U.S. State Department closed the Chinese consulate in Houston to “protect American intellectual property and Americans’ private information.” China responded by ordering the U.S. to close its consulate in the populous city of Chengdu. This power struggle between the two powers is beginning to echo the U.S.–Soviet confrontation of last century, and while we still believe a direct military conflict is highly unlikely, the potential for tensions to negatively impact capital markets is an ongoing threat.
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.