Overview: Despite the lack of a deal for a stimulus package in the U.S., stocks continued to trade higher last week. Markets were buoyed by stronger-than-expected second-quarter earnings, the anticipation of a vaccine in the near future, and lower initial jobless claims. In addition, a stronger-than-consensus July jobs report helped the S&P 500 rise 2.5% last week. In Europe, strong earnings helped drive international developed stocks (EAFE) 2.0% higher for the week, with emerging market stocks (EM) up 1.0%. In bonds, markets were relatively calm, with the 2-year and 10-year Treasury yields finishing the week at 0.12% and 0.56% respectively. Yields remain near historical lows, as longer-term easing policies are forecasted to continue.
Economic news: The jobs report released on Friday was a positive for the markets, as the U.S. economy added 1.8 million jobs in July, better than expected. The unemployment rate declined to 10.2%, down from a high in 14.7% in April. In addition, the reported decrease in weekly jobless claims to 1.2 million for the week suggests the recovery may be getting back on track.
A Note in the Dollar: (the following is JP Morgan commentary) The U.S. dollar (USD) has been on a wild ride since the beginning of the year. As COVID-19 spread globally and markets came under pressure, the dollar began appreciating sharply and was up 6.7% year-to-date at its peak on March 20. This was primarily driven by an increase in investor demand for U.S. dollars given the currency’s historical safe haven status. Since then, however, the dollar has fallen -9.2%, driven by a confluence of factors including high valuations, falling nominal and real U.S. interest rates, a substantial trade deficit and surging fiscal deficit, a unified fiscal package out of Europe, and slowing COVID-19 case growth outside of the U.S. which has led to better international economic data. However, the question for investors is whether this weakness will continue. In our view, the dollar should depreciate over the long run, as the Federal Reserve looks set to keep rates near zero and both the trade and fiscal deficits are likely to remain wide.
Weekly Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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