10 July, 2020 Market Commentary

Stocks Gain but Investors are More Discerning

All blog content is for information purposes. Any reference to indivisual stocks, indexes, or other securities as well as all graphs and tables are not recommendation but only referenced for illustration purposes.

Market Commentary for the week ending July 10th, 2020


  • There were major divergences in markets performance with some moving meaningfully higher while others lagged or declined.
  • Lumber prices surged as demand in the housing market rises.
  • The service sector of the economy came roaring back in June from the May lows.


Performance of the Average Stock

There are many different indexes used to measure the performance of stocks. Some of the most popular include the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite. These are all considered to be measures of large U.S. stocks. There are then other indexes to measure the performance of small U.S. stocks, international stocks, various sectors such as technology and healthcare, and more. These different stock indexes consist of different stocks, may be calculated differently, and could be intended to measure different things.

The S&P 500, as mentioned above, is a measure of large U.S. stocks performance, includes 500 stocks, and is the most widely used by investors to gauge the stock market’s performance. The S&P 500 is a cap-weighted index meaning that the bigger a stocks total value, or market capitalization, the more impact the stock has on the performance of the index. This method of calculation is common and certainly has merit but can sometimes not tell the entire story of the market including in 2020.

S&P 500 index vs. average stock performance yer to date

Source: www.YCharts.com

As the above graph shows, the S&P 500 (cap-weighted) index, the one we see reported everywhere including in this blog every week, is down just -0.4% year-to-date although the average of these 500 stocks is down -11.4%. In other words, if you had $1 invested in each of the 500 stocks in the S&P 500, your portfolio would be down -11.4% even though the S&P 500 index is down only -0.4%. This is because the larger stocks in the S&P 500, those with a larger market cap and therefore having larger impact on the index’s performance, have performed better than the small stocks in the index.

Although large stocks have performed better than small stocks in 2020, and have for the past 2 ½ years, this is not necessarily normal. Depending on the research cited, small stocks have tended to outperform large stocks arguably because they have more risk (more risk tends to result in more return).

All of this serves as a reminder that any one index never tells the entire story of the markets and that what has happened recently, such as large stocks outperforming small, has not always been the case and likely will not continue indefinitely.

Interesting Numbers


Amazon.com’s (AMZN) stock price closed above $3,000 for the first time on Monday of this week and continued higher through Friday closing at $3,200. It first crossed $1,000 in late 2017, hit $2,000 less than a year later then stalled through mid-March of this year when it was trading below $1,700. From those March lows it has surged +91%! Read more about Amazon’s history in our blog.

$250 million

Carnival Cruise Lines (CCL) reported in a recent SEC filing that its ongoing expenses just to keep its fleet of ships parked would cost $250 million per month! Furthermore, the company this week said it would dispose of 13 ships, or 9% of its capacity, in spite of bookings for the 2021 cruise season coming in relatively strong.

This Week’s Performance Highlights

Market Indexes week ending July 10, 2020

Source: www.YCharts.com

There was a significant divergence in stock prices around the world with most tending to move higher for the week. Differences in performance were seen throughout U.S. markets as well as in markets around the world. Markets not all moving in lockstep, as they sometimes do, indicate investors being more selective about what they are buying.

  • U.S. large stocks, as measured by the S&P 500, gained +1.7% while the Dow Jones Industrials lagged with a gain of +1.0% and the tech-heavy NASDAQ surged +4.0%. Continuing a trend of 2020, U.S. small stocks disappointed with a loss of -0.8% for the week and are down -14.1% year-to-date compared to the S&P500 now off just -0.4% in 2020.

    US Stock Indexes 1 week performances

    Source: www.YCharts.com

  • The performance among sectors also varied widely with consumer discretionary stocks performing the best gaining +2.9% followed by technology up +2.7%. On the losing end were energy stocks down -4.8% and industrials losing -1.4%.
  • International stocks on average moved higher, up +0.9%, but the differences were meaningful among the three major regions as the following graph shows. Australia, the smallest of the three regions, declined for the week while the Eurozone, the biggest of the three, performed the best.

    Developed market performance 1-week

    Source: www.YCharts.com

  • Among international emerging markets, the differences in performance were extreme for a single week. China’s market was the huge winner closing the week up +7.5% entirely the result of a one-day surge on Monday, the biggest one-day rally in more than a decade, fueled by reports of several articles in state media announcing the arrival of a new bull market.
  • While China’s market surged, surprising was that Hong Kong’s market was lower for the week by -0.8%. As the graph below shows, China and Hong Kong’s market tend to move in the same direction at the same time with Hong Kong’s outperforming meaningfully over the last decade but not at all so this week.

    China versus Hong Kong stock market last 10 years

    Source: www.yahoofinance.com

  • Other emerging markets were also mixed with Brazil’s jumping +4.5% while Mexico’s fell -3.5%.
  • Real estate stocks suffered losses this week, down -3.6%, with those in the retail and office space suffering the biggest losses. Investors are continuing to try to figure out the long-term impact of the pandemic on shopper’s behavior and companies use of office space.
  • The safe-havens of both gold and bonds gained up +1.3% and +0.2% respectively. Year-to-date these are the best performing assets with gold higher by +18.4% and bonds up +6.9%.
  • Commodity prices rose +1.8% in spite of the price of oil being roughly unchanged. One of the big movers this week was the price of lumber surging +13.6% to a recent new high. As shown in the below graph, lumber prices have nearly doubled since the April lows.

    Lumber price September futures

    Source: www.yahoofinance.com

Economic Indicators

According to the Institute for Supply Management (ISM), the service side of the economy, employing roughly 80% of Americans, snapped back from the COVID-19 lows with the index jumping to 57.1% in June from 45.4% the month before (any reading above 50% indicates growth). This is the biggest change from month-to-month since the index was created in the ‘90s and far surpassed economists’ expectations of a reading of 51.0%. In spite of the return to growth, business activity remains far below pre-crisis levels.

Initial Jobless Claims reported by states continued to decline coming in at 1.31 million this week, down nearly 100,000 from the week before and below economists’ estimates. Continuing claims, the total number of people receiving state benefits, fell to 18.0 million from 18.8 million the week before. Unfortunately, when including claims paid through the temporary federal assistance programs continuing claims are up to 32.9 million from 31.5 million in the prior week.

The Producer Price Index (PPI), a measure of wholesale inflation, came in down -0.2% for June surprising economists who had predicted a rise of +0.4%. This June decline falls a rise in May of +0.4%. Slowing demand in retail and other parts of the economy are blamed for these falling prices.

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