Week in Review

Week in Review: August 3, 2020

Politics Now in Play


U.S. equities closed the week mostly higher as investors assessed a batch of better-than-expected earnings reports from a number of technology companies, against the initial estimate of second-quarter gross domestic product (GDP), which showed the U.S. economy contracting at an annualized rate of 32.9% (see Figure 1). While backward looking, the GDP report emphasized the steep climb the economy must traverse to fully recover. Despite a faster-than-expected initial bounce in activity in May and June, recent data pointed to slower momentum with the risk of activity stalling down the road. Meanwhile, Congress did not reach an agreement on the size and composition of the next stimulus bill, just as the emergency $600 per week unemployment benefits expired at the end of July. While we expect a package to be eventually passed, the ongoing debate did little to fuel investor sentiment last week. Even with the ups and downs, U.S. stocks did well for the month of July, with the S&P 500 recording a gain of 5.6%. In turn, the tech-heavy NASDAQ Composite performed the best, rising 6.9%, after a 3.7% gain for the past week.  

Corporate earnings remained under the limelight last week. More than 80% of the companies reporting so far have beaten estimates, well above the average of 65%, according to Refinitiv. The earnings decline is now looking closer to 33% from an initial 44%.Technology firms, which have been leading the stock market recovery, continued to be the best performers. Because the tech sector’s largest companies have contributed so much to recent market gains, their earnings were an important test for the market, and they didn’t disappoint. Despite the surge across some equity indexes, U.S. Treasury yields, in the 2-year to 7-year range, fell to new lows in the past week. The 10-year yield, not yet at a record low, also faced pressure late in the week. At the same time, the U.S. dollar was down more than 1% for the week and 4% for the month. Strategists believe investors are reacting to ultra-low interest rates, worries about the economy, and the possibility that government spending will push inflation higher. In contrast, gold was a beneficiary of the weaker U.S. dollar, rising about 5% for the week, and 10% for the month.

Against the backdrop of ongoing risks, the Fed reaffirmed its extensive support for the economy last week by leaving rates near zero, and reiterated that the outlook is highly dependent on the path of the pandemic. Additionally, Chairman Powell commented that the Fed will continue to be ready to provide further policy accommodation as needed as “they hope for the best, but plan for the worst.” Looking ahead, we expect the Fed to continue holding the policy rate near its effective lower bound. According to economists, this will likely reinforce the trend of low U.S. long-term rates. Amid record bond issuance, a slow and bumpy economic recovery, extremely accommodative monetary policy and low inflation, current consensus foresees investors and central banks continuing to keep yields contained near current levels over the next several years.

This week, the politics of the stimulus package could translate to added volatility across financial markets, until the Senate Republicans and House Democrats find common ground and reach an agreement on a new round of aid. While the two sides look to be at a standoff, an agreement is still expected early this month. The market is particularly watching to see what happens with the enhanced unemployment benefits, which have been at the epicenter of the debate. A number of Republicans have proposed reducing it to $200; in contrast, Democrats support keeping it at its current level. Cutting the size of the payments back might be good for the labor market and persuade more workers to return to work, according to some legislators, while opponents to the reduction believe that any cutback will have a disproportionate impact on consumer spending, as it will hit the very segment of the population where the marginal propensity to consume is highest. A rebound in economic activity and corporate earnings, along with ongoing monetary-policy stimulus, should provide broad support, but virus concerns and political uncertainties are likely to spark bouts of volatility along the way.


Figure 1: U.S. Gross Domestic Product (GDP)

Quarterly, annualized percentage change


Source: Thomson Reuters (as of August 3, 2020)


Market Returns (USD)





Global Equities

MSCI All Country World

0.7% 5.3% -1.3% 7.2%

S&P 500

1.8% 5.6% 2.4% 12.0%

Dow Jones Industrial Average

-0.1% 2.5% -6.1% 0.8%


3.7% 6.9% 20.4% 32.8%

Russell 2000

0.9% 2.8% -10.6% -4.6%

First Republic Founders Index

1.9% 4.8% 5.9% -

Russell 1000 Equal Weighted

0.5% 4.9% -4.6% 0.6%


-2.1% 2.3% -9.3% -1.7%

MSCI Emerging Markets

1.8% 8.9% -1.7% 6.5%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.2% 1.1% 3.1% 4.0%

Bloomberg Barclays Intermediate Government/Credit

0.2% 0.7% 6.1% 8.0%

Bloomberg Barclays High Yield Bond

0.8% 4.7% 0.7% 4.1%

JPMorgan GBI Emerging Markets Global Diversified

0.2% 3.0% -4.1% -0.8%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3271.12 3215.63 3230.78 2844.74

Dow Jones Industrial Average

26428.32 26469.89 28538.44 25717.74

10-Year U.S. Treasury Yield (Constant Maturity)

0.55% 0.59% 1.92% 1.90%

Gold ($/oz)

$1,975.86 $1,902.02 $1,517.27 $1,463.70

Crude Oil ($/barrel)

$40.27 $41.29 $60.41 $53.63

U.S. Dollar / Euro ($/)

1.18 1.17 1.12 1.12

U.S Dollar / British Pound ($/£)

1.31 1.28 1.33 1.21

Japanese Yen / U.S. Dollar (¥/$)

105.83 106.14 108.61 105.95