Overview: Stocks moved higher across the globe last week, led by international developed (MSCI EAFE) markets, which were up 2.5% for the week. In the U.S., the S&P 500 index rose 0.7% on positive economic data and hopes for a vaccine. However, optimism in the markets is counterbalanced by escalating U.S.-China tensions, European travel restrictions, and unresolved fiscal stimulus negotiations. In bonds, U.S. Treasury yields moved higher for the week, with the yield on the U.S. 10-Year Treasury ending at 0.71%.
Economic News: Economic data reported last week showed signs of an improving U.S. economy. The decline in U.S. initial jobless claims for the prior week was better than expected, with its first reading of below 1 million claims since the beginning of the pandemic crisis. The U.S. has now recovered about 40% of its job losses since March. Additionally, industrial production continues to improve, climbing 3.0% month-over-month. The July consumer price index (CPI) rose 1.6% on a year-over-year basis, above expectations. Importantly, data was supported by a price recovery from the most COVID-vulnerable sectors, such as lodging, travel, and clothing.
World Earnings: Second quarter earnings have fallen sharply in international markets as virus induced shutdowns have weighed heavily on results. To-date, earnings in Europe and Japan have fallen by -31% and -26% year-over-year respectively (JP Morgan) in the second quarter. Emerging market countries are expected to fare even worse, with the Middle East and Africa (EMEA) countries down -56% and Latin America contracting by -72%. While cyclicality has contributed to a larger drop in international earnings this year, it should also help to drive a stronger recovery in 2021. Many foreign countries have achieved better control over the virus than the U.S., and have provide broad support to their economies, factors that should aid economic recovery next year.
Weekly Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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