US stocks soared over the month, surpassing their mid-February level, to post new records highs. The jump was driven by similar themes including fiscal and monetary stimulus, positive news on a vaccine, and better than expected economic readings. US Stocks have now gained for five straight months. With all S&P 500 companies reporting second quarter earnings, 84% topped earnings estimates and 65% outpaced revenue projections by analysts. There are currently multiple vaccines in later stages of testing that have shown promise. The US economy continued to improve over the month. Employers added 1.8 million jobs in July and the unemployment rate fell to 10.2%. New claims for unemployment insurance continued to decline over the month, albeit at a slower rate. The number of people receiving unemployment benefits has dropped to the lowest level since April, 14.8 million. Manufacturing expanded in July at a faster rate than expected and retail sales rose, surpassing the retail spending level before the pandemic. Sales of previously owned homes rose 24.7% in July over June. It was the strongest monthly gain ever recorded and the highest monthly sales pace since December 2006.
Foreign stocks rose in August as well on improving economic numbers, monetary stimulus, and positive news on a vaccine. Second quarter growth results showed how significant an impact COVID-19 had as Germany contracted by 10%, Italy 12%, France 14%, Spain 19%, and the UK 20.4%. Comparably, the US contracted 10%. Manufacturing surveys in Europe and Japan posted strong gains in July. Inflation contracted in Europe in August leading many to believe the European Central Bank will seek to take new stimulus efforts. China posted a 9.5% increase in exports and improved manufacturing results as the country continues to rebound. Emerging markets trailed developed markets in August, but have outpaced developed markets for the year to date.
Bonds posted their first down month since March as interest rates rose. In the Fed’s July meeting minutes, officials expressed concern over the economy and its continued recovery. They believed additional support was needed for the economy from both the government and the Fed. However, they didn’t come to any conclusions on what support they would provide or when that would occur. They also approved a significant change in how they manage inflation. They will no longer proactively raise the Fed Funds rate to head off higher inflation and instead allow it to remain higher than their 2% target if inflation runs below 2% for a period of time. It will seek to target an average inflation rate of 2%. The move likely means interest rates will remain lower for longer. The 10-year Treasury yield reached its highest level since mid-June ending the month at 0.72%, up from 0.55% to start August. For the month, credit and agency bonds were the top performers with shorter term maturities outpacing longer term maturities. Over the year to date, it was US government bonds leading the way with longer maturities outpacing.
|Index Performance||August||YTD||Trl. 1 Yr.|
|US Stocks (Russell 3000)||7.24%||9.39%||21.44%|
|Foreign Stocks (FTSE AW ex US)||4.44%||-2.62%||9.08%|
|US Bond Mkt. (BBgBarc Int. Gov/Cred)||-0.12%||5.94%||5.95%|
|Municipal Bonds (BBgBarc 1-10 Yr Muni)||-0.14%||3.01%||3.16%|
|Cash (ICE BofA ML 3-Mo T-Bill)||0.01%||0.62%||1.26%|
There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Source: Morningstar, Inc.