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Market Commentary for the week ending July 31st, 2020


  • U.S. stocks continued higher in spite of reports of the worst economic slowdown since the Depression.
  • The yield on 10-year U.S. Treasuries fell to a record closing low as the Federal Reserve kept rates unchanged.
  • Earnings are coming in better than expected led by the biggest tech companies.


Big tech is REALLY BIG

Congress is investigating whether or not big tech has gotten too big. This week 4 of the 5 biggest tech companies were under the microscope as their CEOs testify at a congressional hearing on the matter. The questioning by congress seemingly did not go well but this didn’t stop these stocks from continuing to rally this week buoyed by what were generally strong earnings reports from the companies.

Regardless of congress’s ultimate conclusion, which is likely in the distant future, these five tech giants are huge by nearly any measure including market values that exceed $1 trillion for 4 of the 5 as shown in the accompanying table.

Big Tech stocks

Source: www.YCharts.com

This is not the first time there’s been concern that a small number of companies control too much of the economy. Like the digital revolution we are currently experiencing, 120 years ago our country was going through an industrial revolution. At that time there were giants such as Carnegie’s U.S. Steel and Rockefeller’s Standard Oil. At that time our government moved to breakup what was deemed to be their monopoly powers.

To put today’s big tech into perspective, the combined market values of the 5 companies shown in the above table is $6.7 trillion or equal to 32.7% of our country’s current total economic output (GDP). At the turn of the century in 1900, the 5 largest companies represented less than 6% of GDP. Clearly today’s corporate giants, as measured by this one metric, are far larger than the giants of the Industrial Revolution that were deemed to be too larger.

Market value as % of gross domestic product

Interesting Numbers


According to a June survey done by Charles Schwab asking Americans how much money is needed to be financially comfortable, the average was $655,000. This was down from the same pre-COVID January survey saying it took $934,000. When asked how much money is needed to be considered wealthy, the average was $2.0 million in the June survey down from $2.6 million in January. 57% of the respondents said they or a close family member has been adversely impacted by the pandemic.


Eastman Kodak’s (KODK) stock started the week trading at $2.10 per share, climbed above $44 by Thursday, and closed the week at $21.85 for a gain of +1,040%. This once powerhouse camera company has struggled for years in the digital revolution but announced it has borrowed $765 million from the U.S. government that will be used to shift production to ingredients used in pharmaceuticals.

This Week’s Performance Highlights

Market Indexes week ending July 31, 2020

Source: www.YCharts.com

U.S. stocks rallied while international stocks were mixed in spite of reports that the U.S. and Europe experienced the biggest drops in economic activity since the Great Depression in the 1930’s. Leading the U.S. markets higher have been and continue to be the biggest tech stocks helped this week by strong earnings and optimism these companies can continue to grow in a COVID world. Also helping propel markets was the Federal Reserve indicating they intend to keep interest rates near zero.

  • Large U.S. stocks, as measured by the S&P 500, outperformed all other major regions around the world gaining +1.7% for the week putting them back into positive territory for the year up +1.3%. The NASDAQ Composite more than doubled the performance of the S&P surging +3.7% and now higher by +19.8% in 2020. The Dow Jones Industrials lagged by a wide margin down -0.2% for the week and off -7.4% for the year.
  • Small U.S. stocks trailed the performance of large up +0.9% and are still lower by -10.4% year-to-date.
  • International developed markets all moved lower down an average of -1.9% for the week. Stocks in Japan performed the worst of the three major regions falling -2.7%. The Eurozone was a close second down -2.5% with Spain and Italy’s markets among the worst off -4.4% and -3.6% respectively. Year-to-date developed markets are off -9.4%.
  • Emerging markets weathered the week and have held up year-to-date better than developed markets rising +0.4% for the week and down just -3.0% for the year. South Korean and Taiwanese stocks were among the best performers gaining +2.3% and +1.6% respectively while the biggest of the emerging markets, China, was lower by -1.6%.
  • Gold continued climbing reaching a record high jumping another +3.8% for the week and now higher by +29.8% in 2020. A surge in gold has sometimes occurred during periods of uncertainty about the economic future.
  • Real estate stocks surged higher by +4.9% for the week arguably helped by a continued drop in bond yields making the cost of borrowing less expensive. After the week’s gain, these stocks still remain down -19.4% for the year.
  • Commodity prices slipped -0.6% for the week impacted by the price of oil drifting lower for the week but staying above $40 per barrel.
  • The Federal Reserve’s rate-setting committee met this week deciding to keep rates unchanged near 0%. This was as expected with the Fed adding that it sees the economic challenges persisting.
  • Bonds continue to go up in price gaining +0.3% for the week now higher by +8.0% year-to-date. The yield on the benchmark 10-Year Treasury fell to an all-time closing low of 0.535% but held above the intraday low at the height of the market’s panic in March.

    10 year US Treasury yield

    Source: www.YCharts.com

Economic Indicators

Economic activity collapsed in the second quarter with U.S. Gross Domestic Product (GDP) falling at an annualized rate of 32.9%. Service related businesses including travel, tourism, and restaurants were hit the hardest down -43.5%. Helping offset the pullback by both consumers and businesses was a +17% jump in federal government spending. The economy did begin to recover in mid-May after a sharp contraction at the start of the quarter. Current estimates for the third quarter are that the economy will grow by +18% but the surge in COVID cases will likely result in economists lowering these forecasts.

Weekly initial jobless claims showed signs that the recovery in the jobs market is stalling with new claims rising to 1.434 million from 1.42 million the week before. Although this was worse than the prior week it was better than economists were expecting. Continuing claims, including both state and temporary federal programs, declined to 30.2 million from 31.8 million.

Durable Goods Orders, orders for things lasting at least 3 years, rose by +7.3% in June with huge differences among sectors as illustrated in the below graph.

Order for cars and trucks versus aircraft change from prior month

Source: www.MarketWatch.com

Consumer Confidence fell in July to a reading of 92.6 from 98.3 the month before as fears rise about the economic outlook. This month’s reading is still above the pandemic low of 85.7 but is a far cry from the 132.6 level pre-COVID.

Upcoming Economic Reports

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  • Trade Deficit
  • Jobless Claims
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