Overview: Global stocks saw the mixed performance last week as U.S. stocks sold off in the latter part of the week to finish down -0.6%. Meanwhile, emerging markets (MSCI EM) led international stocks higher (up 1.6%), with international developed stocks (MSCI EAFE) up 0.8% for the week. Emerging market stocks are the best performers over the quarter-to-date, up 12.8%, and are now in positive return territory for the year. In the U.S., markets struggled to find direction as both the economic recovery and prospects for further fiscal stimulus appear uncertain. The Federal Reserve concluded its two-day meeting last Wednesday, with Chairman Powell communicating risks to economic recovery and the limitations of monetary policy to support the economy without additional fiscal stimulus. As expected, the Fed kept rates unchanged and indicated they would maintain rates near zero at least through 2023. From a policy standpoint, the Fed upgraded their 2020 gross domestic product estimate from -6.5% to -3.7% year-over-year. U.S. 10-Year Treasury yields were mostly unchanged this past week, with the 2-year and 10-year Treasury notes finishing the week at yields of 0.14% and 0.69% respectively.
A look at the consumer: Investors continue to look for clues from consumer spending to gauge economic recovery. An important data point is retail sales, where August sales rose by 0.6% relative to July. This was the slowest monthly increase since retail sales bottomed in April. A bright spot was sales in restaurants and bars, which rose a strong 4.7% last month. Overall, however, the services sector is still under pressure from social distancing behavior. On a year-over-year basis, retail sales are up by 2.6%, but momentum slowed in August, coinciding with the expiration of the $600 extra weekly unemployment payments. Services spending will likely remain depressed until the widespread distribution of a vaccine. This should contribute to a general slowing of economic recovery (JP Morgan).
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