for Week Ending July 3rd, 2020
WEEKLY MARKET SUMMARY
Global Equities: US equity markets advanced steadily heading into the July 4th holiday, as investors continued buying despite daily COVID-19 cases eclipsing all prior single-day records as the virus spreads unchecked across the country. The grim virus data has caused some states to delay previously announced reopening measures, but investors were emboldened by better-than-expected jobs data and an extension of the Payroll Protection Act. The S&P 500 rose over 4% while the Nasdaq was up 4.6%. Emerging Markets were able to gain 3.6%, despite escalating social unrest following the implementation of harsh new policies in Hong Kong, which make criticism of the mainland government punishable by lifetime imprisonment. Developed International markets also advanced, although to a lesser degree, posting a 2% weekly gain.
Fixed Income: The yield on the 10-year Treasury Note remained below 0.7% for most of the week, despite the shift back to “risk on” in equity markets. Corporate bonds bounced back after losing some ground last week, with investment-grade bonds and high yield bonds both gaining around 1.4%. Net inflows of $7 billion were reported for investment-grade corporate bond funds while high yield funds reported net outflows of $5.5 billion.
Commodities: Oil prices recovered from last week’s slip, with the US-based West Texas Intermediate crude benchmark reclaiming $40 per barrel. The International Brent crude benchmark was stronger in weekly trading, ending up above $42 per barrel. Saudi Arabia admonished fellow OPEC members mid-week for not holding their end of the production-cut deal, threatening to spark another price war. Gold prices briefly touched a key milestone at $1,800 per oz, before dipping again after the stronger-than-anticipated June jobs data.
WEEKLY ECONOMIC SUMMARY
June Jobs Data: President Trump was able to take a victory lap on the June Employment Report, which came in stronger than expected with 4.8 million new jobs created in the month. The gain matched the prior month and easily beat consensus estimates of a 3-million-job gain. The unemployment rate dipped to 11.1%, an improvement from the 14.7% peak but still higher than any point since the 1940s.
Mortgage Rates at All-Time Lows: The housing market has been supported by low interest rates for some time now, and that trend shows no sign of slowing down. According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average tumbled to a record-low 3.07%. The 30-year fixed rate is at its lowest level since Freddie Mac began tracking mortgage rates in 1971. Despite the extremely low rates, mortgage applications slipped -1.8% for their second weekly decline, as many borrowers may not be able to take advantage due to job loss combined with stricter underwriting standards.
Fed Supportive of More Stimulus: Federal Reserve Chair Jerome Powell, joined by Treasury Secretary Steve Mnuchin, hit all the right notes in their testimony before the House Financial Services Committee, spurring markets higher. Powell noted that the rebound in the markets had occurred sooner than expected but cautioned that reopening may trigger the need for further support, which the Fed is prepared to provide. For his part, Secretary Mnuchin stressed the Trump administration’s desire to provide additional rounds of economic stimulus directly to Americans in the coming months.
CHART OF THE WEEK
The Chart of the Week shows the year-to-date performance of the Vanguard Intermediate-Term Corporate Bond ETF (ticker VCIT), which holds Investment-Grade Corporate Bonds with maturity dates generally within 10 years. The US Federal Reserve has purchased roughly $6.8 billion of ETFs, including VCIT, through the so-called Secondary Market Corporate Credit Facility through June 16. As a result, the Fed is now the 5th largest holder of VCIT and has a significant stake in other fixed income ETFs, pushing them to new all-time highs. Hanlon currently holds a significant allocation to Investment-Grade Corporate bonds across Strategic, Dynamic (All-Weather), and Tactical models.
Chart data provided by stockcharts.com. Commentary and opinions are those of Hanlon Investment Management.
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