Market Currents

• Back in the Green. The S&P 500 benchmark erased its loss for the year as the market continued its grinding move higher.  July provided further evidence that economic activity has improved since lockdowns were lifted, even as news of a resurgence of the pandemic in certain parts of the country continued to occupy the headlines.  Promising early-stage trial results from COVID-19 vaccines and therapeutics, and an unprecedented level of monetary and fiscal policy support from authorities, further drove the market strength.

• COVID Update. Daily new infections in the U.S. began to rise again from mid-June.  That trend continued throughout most of July, but thankfully appeared to slow somewhat towards the end of the month.  Though several jurisdictions have halted or reversed their reopenings, we believe the odds of another nationwide blanket lockdown are slim.  Unlike early on in the outbreak where the only option seemed to be a broad stay-at-home order, individuals and businesses are now much better informed and equipped to adapt to life with the virus.  As such, it is possible that the virus has already exerted its maximum negative impact on the economy.

• Economic Activity Improving. Despite the unevenness of the reopenings across the different states, economic activity in general has been picking up.  The labor market continues to recover faster than most economists’ expectations.  Manufacturing signals remained encouraging, and housing trends continued to hold surprisingly firm through the crisis.

• Second Fiscal Package. Consumer incomes have so far been protected by support measures from the direct assistance U.S. government provided through stimulus checks and unemployment benefits.  Several of the relief programs to individuals, businesses and states have expired, or are about to unless an agreement is reached.  Congress is currently negotiating another bill that could see a second round of stimulus checks, as well as some extension to unemployment benefits.  The parties are still far apart on a deal, but we expect the sides to work out a compromise deal.

• Q2 Corporate Earnings. Second quarter corporate earnings season is near its conclusion.  Not surprisingly, companies reported a sharp decline in earnings and revenues through the period.  However, analysts’ expectations were for an even steeper drop, leading to an earnings season that was among the “best” in market annals.

• Outlook. The reopening of the economy, surging liquidity and hopeful virus treatment/vaccine news have been significant tailwinds behind stocks.  The economy and corporate earnings are generally coming in better than expected, and are showing encouraging signs of recovery.  We maintain a watchful eye on new infection trends, and how they may affect the pace of activity restart.  In particular, school openings remain a volatile unknown.  The Presidential race remains a toss-up at this point.  As the election season heats up, we will continue to monitor the potential market impact from possible changes to the balance of power in Washington.