S&P 500 sets new all-time high

Prior week summary

The major U.S. equity indices ended mixed for the week with the Dow Jones Industrial Average falling and the S&P 500 moving higher, extending its winning streak and setting new all-time highs, as encouraging economic data releases and falling COVID-19 case counts in the U.S. boosted investor sentiment amid stimulus bill uncertainty. On Tuesday, the S&P 500 hit an all-time high, erasing the losses seen in the first quarter due to the emergence of COVID-19. While an encouraging sign for the broader state of the U.S. economy, analysts warn that this recovery has been uneven with approximately 60% of the stocks in the index remaining in negative territory for the year. Market participants received updates on several subsets of the U.S. economy from this week’s data releases with the data suggesting a mixed U.S. recovery. On the manufacturing front, the Empire Manufacturing Index fell 13.5 points to 3.7, well below the 17.2 level seen in July and suggesting the rise in COVID-19 cases across the southern U.S. has hampered the manufacturing industry recovery. The Philadelphia Fed’s Business Outlook Survey painted a similar picture with the index falling to 17.2 in August, below both expectations and last month’s 24.1 level. The housing sector saw very encouraging data last week. Housing starts jumped 22.6% in July to 1.496 million, above both calls for 1.252 million and the 1.220 million figure seen in June. Building permits also handily beat expectations rising 18.8% month over month. Initial jobless claims moved back above 1 million as 1.11 million individuals filed for unemployment in the last week. While market participants were discouraged by the trend higher in unemployment claims, they found some solace in the continuing claims figure continuing to fall, now at 14.8 million, below the 15.5 million figure seen last week. In the minutes released on Wednesday from the FOMC’s latest policy meeting, criteria for continued improvement in the U.S. labor market were discussed with the minutes reading, “Participants generally agreed that prospects for further substantial improvement in the labor market would depend on a broad and sustained reopening of businesses. In turn, such a reopening would depend in large part on the efficiency of health measures to limit the spread of the virus.”

As of Sunday evening, over 23.5 million individuals have contracted COVID-19 globally with just under 5.9 million individuals testing positive for the virus in the U.S, nearly a quarter of the global tally. After experiencing a surge in cases in the southern U.S., the U.S. has experienced a steady decline in daily case count within the past two weeks. The U.S. had set a record in late July, recording over 79,000 cases in a single day, but the situation has improved, mainly in hot spots in the southern U.S., with the U.S. reporting approximately 58,000 cases on Friday, over a 25% decline from the records set in July. Speaking on the progress seen in the southern U.S. in combatting the large surge seen last month, CDC Director Robert Redfield said, “We are beginning to turn the tide on what I call the southern outbreak in the nation. I think I’ve seen pretty strong data that the mitigation steps that we advocated – something as simple as a facemask, social distancing, washing your hands, closing bars and having limited indoor dining at restaurants – you really see we can get control of this pandemic.” On Sunday, the FDA authorized the emergency use of convalescent plasma in treating individuals with COVID-19. The therapy uses plasma from those who have recovered from COVID-19 and injects the antibody-rich plasma into individuals fighting COVID-19 in an attempt to ward off severe disease. FDA commissioner Stephen Hahn reported that the data suggested a 35% improvement in survival for those treated with the therapy. After announcing that the FDA has authorized emergency use for the therapy, Hahn explained the decision saying, “Those scientists have concluded that COVID-19 convalescent plasma is safe and shows promising efficacy, thereby meeting the criteria for an emergency use authorization.”

The look forward

Market participants are gearing up for another busy week of economic data releases with updated figures on new home sales, durable goods orders, jobless claims, second-quarter GDP, and consumer spending, among others, dotting the economic calendar.

Rates Snapshot

Market implied policy path (Overnight indexed swap rates)