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Market Commentary for the week ending July 24th, 2020


  • Stocks around the world closed little changed for the week as investors digest a multitude of earnings reports.
  • Gold was the shining performer surging to multi-decade highs signaling potential long-term economic challenges.
  • The housing market showed multiple signs of recovering while the employment picture turns mixed.


Is this 1999 all over again?

The S&P 500 is just -5.0% below its all-time high hit just 5 months ago as we fight through one of the most challenging economic environments in modern history. The market’s incredible recovery from the March lows combined with a surge in speculative day trading by first-time investors has some wondering if this is 1999 all over again.

The rapid increase in speculative investors is a bit reminiscent of the late ‘90s when tech 1.0 stocks such as Microsoft, Oracle, Yahoo, and many others surged higher before collapsing in the following years. At the height of the rally in 1999 the S&P 500 reached a 100-year record high of 34 as illustrated in the below graph.

S&P 500 earnings ratio 1900-2020

Source: https://www.multpl.com/s-p-500-pe-ratio/table/by-month

The S&P 500 P/E ratio ended 2019 at 23 and currently sits around 27 partially impacted by lower earnings due to COVID-19. This ratio will fall to 18 at the end of 2021 based on current earnings estimates and assuming prices are at today’s level.

This all suggests stock prices are expensive but not excessive. Only time will tell whether or not this is 1999 all over again.

Interesting Numbers

5,034 Square Feet

The average size of homes sold during the second quarter in Greenwich Connecticut topped 5,000 feet for the first time coming in at 5,034. Demand is big for larger homes as New Yorkers seek suburban refuge. Separately the average home price in the Hamptons surged +27% compared to the same period a year ago to $1.08 million fueled by the same demand from New Yorkers.

34 Million Miles

China launched a rocket that will travel 34 million miles in 7 months in its first-ever attempt to put a rover on Mars. Attention will now shift to the U.S. with NASA’s planned launch of its Perseverance rover as soon as July 30th. Mars missions are difficult with approximately half ending in failure.

This Week’s Performance Highlights

Market Indexes week ending July 24, 2020

Source: www.YCharts.com

Stocks closed mixed to lower around the world as investors considered the earnings reports delivered by 84 of the S&P 500 companies this week. Numbers are generally coming in as expected or better but the outlook offered by some is concerning.

  • Large U.S. stocks were lower with the S&P 500 down -0.3% and the Dow Jones Industrial Average fell -0.8%. The tech-heavy NASDAQ Composite underperformed for the second consecutive week down -1.3%.
  • Among the biggest losers this week was chip-giant Intel (INTC) falling -15.7% losing $40 billion in market value after reporting earnings and providing a disappointing outlook. One of its competitors, Advanced Micro Devices (AMD) with less than one-tenth the revenue of Intel, did see its stock surge +26.1%.
  • After rallying sharply the week before, small U.S. stocks held onto most of those gains down just -0.4% for the week. Year-to-date small stocks continue to lag behind large down -11.2% versus +0.8% for large stocks.
  • International developed markets were mixed with Australian stocks a bit higher, Eurozone stocks essentially flat, and Japan’s stocks off -0.6%. Clearly having little impact on markets this week but certainly a serious consideration for long-term investors was the European Union leaders’ agreement on a $2.06 trillion spending package to help mitigate the economic downturn caused by COVID-19. A large portion of this spending will be funded by first-ever issuance of common debt among the nations.
  • Emerging international markets were the only ones higher for the week up +0.9% and now off only -3.3% for the year. Although the average was higher, the largest, China and Hong Kong, were both down -1.2% and -1.9% respectively. These loses were more than offset by gains of +4.1% for Mexico and +4.0% in Russia among others.
  • Real estate stocks added to their deep losses for the year down -0.9% this week putting them down -23.2% in 2020. Much uncertainty persists about the long-term future of multiple property types.
  • Gold was the real bright spot this week jumping +5.0% and now higher by +25.1% for the year. Gold initially fell with everything else at the start of the pandemic but has come roaring back and persistently moved higher closing near multi-decade highs as illustrated in the below graph. Such a rally in this safe-haven asset arguably suggests a negative outlook for the economy.

    Gold price per ounce

    Source: www.YCharts.com

  • The price of oil closed at $41.34 per barrel helping the commodity index rise by +0.9% for the week.
  • Bond prices continued their climb higher up +0.4% as the yield on the U.S. 10-year Treasury fell to 0.591%. Bonds are up +7.6% for the year with the safest, U.S. Treasuries, up +11.7% while riskier high-yield bonds are down -1.2%.

    Bond prices year to date

    Source: www.YCharts.com

Economic Indicators

New home sales increased by +7% compared to the prior month coming in at an annualized rate of 646,000 which was below the Wall Street Journal’s survey of economists. This current pace of sales is +4.5% ahead of last year with the average price nearly unchanged year-over-year at $310,400.

Much like new home sales, existing home sales jumped +21% in the most recent month to 4.72 million annualized but came in below economists’ forecast. Although up sharply for the month, unlike new home sales, existing sales are still off -11.3% compared to the same period a year ago. The northeast has suffered the biggest decline from last year down -27.9% while the south is holding up the best off just -4.0%.

Initial jobless claims disappointed this week rising for the first time since the start of the pandemic to 1.42 million. An additional 974,999 people applied for benefits from special federal programs. Continuing claims, or the total number of people receiving benefits across both state and federal programs, inched lower by 200,000 to 31.8 million.

The Leading Economic Indicators index rose by +2.0% in June following a +3.2% improvement the month before after having fallen -6.3% in April. Economists say this month’s report suggests the economy will remain in a recession at least for the near term.

Upcoming Economic Reports

  • Durable Goods Orders
  • Case-Shiller Home Price Index
  • Consumer Confidence Index
  • Gross Domestic Product (GDP)
  • Initial Jobless Claims
  • Consumer Spending

Contact Mark A. Patton :