The stock market (as represented by the S&P 500 Index) continued its impressive recovery and hit an all-time high on Tuesday, August 18. The market rally has been led by the technology sector, and the Nasdaq Composite Index, which is comprised largely of technology stocks, also hit an all-time high on Tuesday. In fact, it has reached a record high 34 times this year! While the S&P 500 is up about 6% on the year, the Nasdaq Composite is up over 26%.
Later in the week, the market rally was stalled by statements from the Federal Reserve and the latest jobless claims report. The Federal Reserve warned that the public health crisis would continue to weigh heavily on economic activity in the near term and posed considerable risks to the outlook over the medium term, according to the Fed meeting minutes. The Fed, as expected, held interest rates near zero and maintained the pace of its asset purchase program to supply liquidity to the financial markets.
The U.S. Department of Labor on Thursday announced that jobless claims for the prior week were over 1 million, which was higher than expected. The previous report marked the first time in 21 weeks that the jobless claims were below 1 million. Around 30 million Americans are still collecting unemployment benefits. Congress remains at an impasse on extending the additional unemployment benefits that ended at the end of July, all according to Schwab.
The bright spot that continues to lift the markets is company earnings. Nearly all of the 500 companies in the S&P 500 Index have reported earnings results for the second quarter, and 83% have beaten estimates. While earnings have fallen almost 34% compared to last quarter, most companies have exceeded expectations by a wide margin, according to FactSet.
If the events of this year haven’t been enough for people to handle already, many Iowans learned of a new type of storm on Monday, August 10, called a derecho. The storm tore over 700 miles from Nebraska to Indiana and damaged an estimated 10 million acres of Iowa farmland. Up to 43% of Iowa’s corn and soybean crop could be damaged, according to Governor Kim Reynolds. It is too early to assess all of the damage, but it will likely be in the billions of dollars which is a severe blow to the Iowa economy that is already hurting from the shutdowns caused by the pandemic.
Despite COVID-19 cases and political uncertainty casting a cloud over the markets and economy, investors continue to focus on the positive light of the economy being reopened. The “V” shaped recovery of the market may reflect investors who are a little too optimistic about an economy that could face a slower recovery. Our investment team will continue to monitor the markets and portfolios of our clients as we hope for a much less eventful close to the year!