Yesterday, S&P 500 Index reached new heights and closed at 3,443.62(+0.36%). Despite ongoing uncertainty related to COVID-19, markets are still extremely resilient.
Amongst the best performing sectors were Communication (+0.97%), Health Care (+0.70%), and Consumer Discretionary (+0.53%) with information technology only slightly behind (+0.52%). The worst performers were Energy (-1.42%), Utilities (-0.92%), and Materials (-0.32%).
Upbeat sentiment in the markets may not necessary be shared with the wider population in the U.S., as unemployment is still high (10.2% in July), albeit registering a drop of 0.9% compared to the previous month. Average hourly earnings (excluding farming) increase by 7 cents $29.39. The government's attempts to control the situation through extended or increased unemployment payments. However, attempts are met with a level of criticism, as approximately one million Americans may not be eligible to more support.
Another growing aspect of higher unemployment is its impact on the housing market. Depending on the source, 30-40 million Americans may be at risk of being evicted in the upcoming months. Democratic house passed “Emergency Housing Protections and Relief Act of 2020” back in July, however it is currently stuck in negotiations with Republicans, as the Senate did not specifically address evictions.
U.S. bonds have been having diminishing yields for some time now. 3 Months Treasury bond currently has the yield of 0.10%, while 2 Year Treasury bond is offering 0.15%. The sentiment has changed amongst the investors too. While none are happy about the current yields, the idea that any returns are better than no returns may have already settled in with many. It is not surprising, as some major economies, like Germany, already have negative yields on their 2- 10 years bonds, while Japan is showing similar numbers (5 year, -0.09%).
Commodities still have not recovered from their earlier levels in February, however the trend is still positive. S&P GSCI reached 1,801.15, compared to 1249.25 on 22 March. Gold has dropped from its highest (2,069.40) on 6 August to its current 1,1914.90. Silver has seen similarly timed adjustments and is currently at 26.41, compared to 29.26 (10 August).
Meanwhile in Europe, countries have varying levels of success with economic recovery and take different approached to tackle the remaining threat from COVID-19. The UK chancellor Rishi Dunak is adamant no to extend the furlough scheme after October, which costs £14 billion a month to run it. However, UK’s counterparts in continental Europe are less shy to continue with their schemes.
Germany already approved additional $12 billion to extend its scheme, while countries like France, Italy, or Austria may do the same soon. Furlough schemes in Europe helped to keep the unemployment lower compared to the U.S., however Q4 2020 and Q1 2021 will show the real effectiveness of these approaches when the schemes will eventually be phased out.
As governments now have better understanding about nationwide lockdowns, there is little appetite to repeat them, unless it would completely unavoidable.
Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.