Economic Market/Portfolio Happenings
Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
All data is for the week ended July 31, 2020.
U.S. equities fell for the second consecutive week, with the benchmark S&P 500 easing 0.27%, the Russell 2000 down 0.38% and the NASDAQ dropping 1.33% as investors await some further government stimulus to offset recent business closings due to COVID-19. Overseas markets rose, with the international developed markets (MSCI EAFE) up 0.42% and emerging markets (MSCI EM) gaining 0.57%. In the U.S., energy and consumer discretionary sectors were the strongest performers while technology and communication services were the laggards. (1)
After a two-day meeting, the Federal Open Market Committee made no significant changes to monetary policy, holding interest rates close to zero and pledging to do more to support the recovery if necessary (which was in line with expectations). The Federal Reserve chairman refrained from recommending which Congressional measures the Fed would like to see but said that the optimal economic plan to combat the pandemic’s effect is a combination of political and Federal Reserve support. (2)
The case for higher prices of gold (ETF: GLDM, a Precious Metals and ETF Endowment Series holding) remained strong as the Fed signaled at last week’s meeting that it would continue with its dovish monetary policy stance, with gold reaching a new high of $19.78 per ounce. Gold is viewed as a good hedge against geopolitical risk and rising inflation and is also attractive when interest rates are ultra-low. (3)
The dollar weakened to a two-year low on Thursday, finishing the week nearly 3% lower over the last month, as sharp increases in U.S. coronavirus cases and flare-ups around the world weighed on investor confidence. The dollar index (DXY) which measures the currency against a basket of peers, has slipped to its lowest level since May 2018, as the continuing spread of COVID-19 in the U.S. threatens to dampen the economic recovery. (4)
The U.S. economy dropped 32.9% in the second quarter after the COVID-19 impact was the worst in the April-June period—the worst drop on record but slightly ahead of consensus estimates. Separately, initial unemployment claims rose slightly last week, and the prior week’s numbers were raised slightly, both in the 1.4 million area. (5)
Durable goods orders rose 7.3% month over month on top of a May increase of 15.1%, indicating some rebound in our economy from the April lows. When excluding the volatile defense sector, orders rose 9.2% in June. Inventories were virtually flat for both June and May, indicating good sell-through of manufactured items. (6)
U.S. home prices rose 3.7% on a year-over-year basis in May. This was below expectations of a 4.1% gain. Phoenix and Seattle led the way with gains of 9.0% and 6.8%, respectively. (7)
Proprietary portfolio happenings:
Apple Inc. (AAPL), a Core Select holding, rose nearly 15% for the week after the company reported results indicating strong performance in the midst of the pandemic, benefiting from more people working from home. The company also announced a 4 for 1 stock split. (8)
Fortune Brands Home & Security (FBHS) a Contrarian Choice, Core Select and G50 holding, shares rose nearly 8% after the company reported revenues and earnings that were well ahead of expectations. (9)
PayPal Holdings Inc. (PYPL), a Core Select and G33 holding, shares rose nearly 14% after easily beating estimates for revenues and earnings and guiding the full year growth rates to approximately 20% and 25%, respectively. Total payment volume rose 29% last quarter and their Venmo service for personal devices saw volumes rise by 52%. (10)
Starbucks Corp. (SBUX), a G50 holding, reported earnings that were better than expectations as comparable sales in the Americas declined 41% and international sales were down 37%. Management expects full year (September) global comparable sales to drop 12% to 17%, indicating improvement in the current quarter. Shares rose 1% for the week. (11)
Teledoc Health Inc. (TDOC), a G33 holding, shares rose nearly 12% after the company reported earnings from continuing operations of $2.7 million versus a loss of $12.7 million a year earlier. The leader in hospital-based telemedicine saw visits up 209% year-over-year. Management expects revenues to grow over 35% in 2020 and 30-40% in 2021. (12)
Did You Know? Most people believe that McDonald’s is the world’s largest restaurant chain by stores. Subway actually has 41,000 stores vs. 38,695 at McDonald’s. However, McDonald’s generates twice the revenue that Subway does.
Sources: (1) JP Morgan Weekly Market Recap 8-3-20, (2) Federal Reserve press release 7-29-20, (3) Apmex gold prices, (4) Finance.yahoo.com, (5) US Bureau of Economic Analysis 7-30-20, (6) US Census Bureau Monthly Durable Goods 7-27-20, (7) Case Shiller 20-City Price Index 7-28-20, (8) Apple Inc. press release 7-30-20, (9) Fortune Brands press release 7-29-20, (10) PayPal Holdings press release 7-29-20, (11) Starbucks Corp. press release 7-28-20, (12) Teledoc Health Inc. press release 7-29-20