Overview: U.S. stock markets finished a volatile week mostly unchanged as fiscal stimulus remained in limbo, and economic and earnings data were mixed. The S&P 500 edged 0.2% higher for the week. In Europe, a new wave of COVID- 19 cases led to renewed regional lockdowns and outweighed optimism over the economic recovery. International developed stocks (MSCI EAFE) were about -1.5% lower for the week. U.S. Treasury yields continued to trade near record lows and in a tight range, with the 10-year Treasury finishing the week at a yield of 0.74%. Of note, the Federal Reserve also announced that it would continue asset purchases to keep rates low as the Treasury market continues to grow with new issuance near record levels.
Economic News: Economic data was mixed last week. Growth showed signs of slowing, as the U.S. Industrial Production fell 0.6% in September, the first decline in four months. Consumer spending, on the other hand, showed strength, with U.S. retail sales rising 1.9% month-over-month in September. Clothing and new vehicle sales led the increase. On the inflation front, U.S. consumer prices (CPI) remained muted at +0.2% the slowest pace in four months. Meanwhile, U.S. initial jobless claims rose to a two-month high of 898,000, signaling a slowdown in labor market recovery. The economy needs to recover about another 11 million jobs to regain the 22 million jobs lost in the pandemic. This week, we have data on housing stats (Tuesday) and existing home sales (Thursday), followed by the purchasing manager’s (PMI) numbers on Friday.
A Comment on the Economy from JP Morgan: Last week, U.S. economic data gave investors a glimpse into how the economic recovery is unfolding. Generally speaking, the signs are conflicting: jobless claims, both initial and the four-week moving average ticked higher; retail sales figures surprised well to the upside, though the prior month’s already disappointing results were revised lower; and industrial production figures disappointed, with manufacturing output falling and capacity utilization shrinking, echoing earlier declines seen in U.S. manufacturing PMIs. Despite this overall weakness, the U.S. economy is still not at risk of a “double-dip” recession – additional large-scale shutdowns and other aggressive policy measures seen in the earlier days of the pandemic will likely not be repeated, sparing gross domestic production (GDP) from another contraction. Still, for investors, this should mean one thing: while the pace of the economic rebound was at a first extreme, in the absence of a vaccine, re-opening momentum will likely continue to fade. The recession may be over but the road to recovery is a long one, and investors should continue to broadly diversify in an effort to be more defensive.
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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