Economic and Market Update

By Kevin Taylor

The Economy:

There were two major items of news connected to the economy last week. Both were negative and raised concerns about how the second half of 2020 would react to the ongoing pandemic crisis. These were:

Gross Domestic Product (GDP) – according to the Bureau of Economic Analysis (BEA) GDP fell in the second quarter by 9.5% compared to the 1^st quarter, this equates to a 32.9% annualized rate. It was the worst performance for the U. S. economy since 1958. Consumer spending, the largest part of GDP, led the decline, falling by 25.05%. Most of the other major categories were also negative, with the exception of Net Exports (+0.68%) and Government (+0.82%). Also, consumers were less willing to spend as reflected in the nation’s savings rate of 19.0%.

Unemployment Insurance – compounding worries about the economy was the end of the $600 additional weekly payments from the CARES Act. The Congress has been unable to reach an agreement either to extend those benefits, or to come up with a new plan. Add in the end of foreclosure protection for millions of renters and mortgage holders, and you have a pretty grim picture for the economy moving forward.

The labor market remained under stress as some 1.4 million workers filed initial jobless claims last week. Economy.com made the following gloomy assessment,

“Outside of government support, consumer fundamentals are awful. Millions lost their jobs or had hours cut materially. Nearly 15 million fewer jobs existed in June than in February and wage income was 6.3% below its February level, so labor markets clearly have weakened dramatically. Stock wealth has mostly recovered, but its volatility has been emphasized.”

Unless Congress acts quickly, the hoped-for recovery in the second half of the year may prove to be an illusion.

The Markets:

As noted in the table above, two of the three major indicators showed strong gains last week, with only the Dow Industrials failing to post positive gains. The S & P 500 finally poked its nose above water for the year so far. The tech-heavy NASDAQ Composite left the others in the dust with a total return of more than twenty percent (dividends included) for 2020.

The markets got quite a boost when four of the so-called FAANG stocks – Facebook, Apple, Amazon, and Netflix – reported surprisingly strong revenues and earnings this past Thursday. Apple in particular was a surprise as iPhone revenues and sales far exceeded analysts’ consensus expectations. Many had expected iPhone sales to be weak as consumers waited for the next generation of 5G phones to be released later this year.

The CEOs of most of those same companies appeared on Capitol Hill this week (via Zoom, or other televised media) to answer questions from the Congress about their supposed monopoly powers and market control. I doubt that there will be much in the way of new regulations, lending weight to the old saying, “When all is said and done, more is said than done.”

The meeting of the Federal Reserve’s Open Market Committee (FOMC) last Tuesday and Wednesday was almost a non-event. The Committee voted unanimously to maintain short-term interest rates at near zero, and Chairman Jerome Powell’s post-meeting remarks seemed to indicate that they would likely remain at that level for the next couple of years.

Even at that low level, Treasury rates and mortgage rates slipped a few basis points closer to absolute zero. All of those rates are down significantly from what they were at the beginning of the year.

Speaking of lower and weaker, the U. S. dollar continues to slide against the Euro (€) and the Yen (¥). That’s generally good news for foreign buyers, travelers, and investors, as well as for American companies, such as Coca Cola and McDonald’s, that earn a lot of their revenues overseas.

Kevin Taylor is a financial advisor located at Vaughn Wealth 1127 Edgewater Drive, Orlando, FL 32804. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 407-872-3888 or at Kevin@vaughnwealth.com.

Kyle Taylor is a financial advisor located at Vaughn Wealth 1127 Edgewater Drive, Orlando, FL 32804. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 407-872-3888 or at Kyle@vaughnwealth.com.

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