Hey folks, amazing we can see US Indexes continue to march higher while the economy sputters along…but as I am always reminding our members, the Stock Market is not the Economy and vice versa. Let’s dive into this past week’s performance and take a look at where the odds favor the next directional moves
Weekly Sound Bites;
• Stocks extended the previous week’s gains, while the Nasdaq set another record moving over 11,000 on better-than-expected economic data and improved trends in U.S. coronavirus cases. Business activity for the services sectors expanded, and the U.S. economy added 1.76 million jobs in July, beating estimates. The continuing, yet moderating, gains in employment show that the recovery in the labor market and the economy is on track, but there is still a long road ahead…Despite the better-than-expected report, the jobs market is still burdened by the abrupt shuttering of the U.S. economy. The unemployment rate has come down from the record high 14.7% reached in April to 10.2% in the latest reading…
• The outlook of a slowed recovery timeline and the likelihood of more government stimulus and increased government debt have also contributed to a weakening of the USD…The Dollar index fell 4% in July, the lowest monthly fall in over a decade…Recently, real yields on 10-year Treasury bonds, which take inflation into account, dropped to the lowest level on record of minus 1.10% because of the prospect of rising inflation due to aggressive government stimulus and spending. Though inflation is likely to rise over time as the economy improves, I would expect it to stay at rather lower levels along with interest rates which will keep the USD trending lower…this in turn has propelled Gold to its highest levels on record taking out the highs made back in 2011…it has been said that the Gold Bugs are the Cicadas of the investment ecosystem in that they hibernate for years but when they come out they emerge in a buying frenzy…then they go away again back into hibernation waiting for the next party to commence…
• As the dollar slumped in July and August, gold rallied 17% reaching a record $2,063 before softening a tad to still lofty levels2. Behind the gold rally was concern on the part of some investors that a large amount of government stimulus would cause a spike in inflation. While gold has had periods of outperformance when inflation increased unexpectedly, it is also marked by extreme levels of volatility compared with other asset classes.
• And now with the Dems and the Repubs at a Stimulus stalemate Trump is standing ready by Exec Action to put more Stimulus into the Economy but the details are not clear on who, what and where the money will go…we’ll see. Meanwhile Trump has put a Tic Toc deadline on TikTok and WeChat, both Chinese applications that will be persona non-grata in the US in 45 days…but Trump is OK with a MSFT acquisition purchase of TikTok assets…analysts place the odds of an acquisition at 75% thus far.
• And finally, if none of you have forgotten, we are seeing Q2 Earnings winding down…and with over 84% of the companies having reported the beat rate is almost 22% which is higher than the 5 year average of 72%…this is the highest beat levels since these measurements began over 30 years ago…and perhaps more important, Q3 Estimates are moving higher for the first time since Q1…
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