Last week on Tuesday, May Retail Sales rose more than twice as much as expected, coming in at 17.7%. The increase in sales was likely the result of government stimulus in addition to the gradual return of consumer confidence. All retail categories increased in May, including a 44% surge in sales of motor vehicles and a 29% jump in restaurant receipts. The National Assoc. of Home Builders Index saw its largest increase on record as U.S. homebuilders’ outlooks improved in June as record-low interest rates and demand for more space spurred buyers.
According to the WHO, cases of COIVD-19 rose by a record for a single day Sunday, June 21st, with flare ups across the U.S. Although cases are on the rise, the death rate is remarkably down. Some experts attribute this to the fact that those testing positive are younger and can more easily fight off the virus.
Fixed Income Market:
By far the most impactful development in the credit markets last week was the surprise announcement by the FED that they would begin to purchase individual corporate bonds as part of their program to support the US financial markets. The news release was made at 2pm last Monday and the result was an immediate tightening of spreads vs USTs across the entire credit spectrum. The FED has created a diversified index of individual securities that they will be purchasing, the exact terms of which have not been made public. The index will represent only US issuers and will have maximum maturities and minimum ratings.
Internally we continued to see very strong client demand for new issues in the Structured Note sector with monthly volumes approaching the rate seen in Q1 following a severe drop off in April and May. Secondary trading activity was somewhat lighter on the week with more buying in IG credits rather than Latam or HY.
The Dow Jones Industrial Average advanced 265 points, or 1% to 25871 on the week, while the S&P 500 index rose 1.9% to 3098, and the tech-heavy Nasdaq Composite gained 3.7% to 9946. Last week, the biggest sector winners were Healthcare and Technology, each contributing more than 3% gains, offset by the utility sectors losing approximately 2.4%. Goldman Sachs pointed out this week that equity names popular with retail investors have outperformed the professional hedge fund and mutual fund managers.
The official start to summer 2020 has arrived and the markets are reflective as we remain within the recent range along with diminishing volatility.
The USD remains trapped as concerns for the potential of a second wave of COVID-19 has slowed the optimism from the reopening of the economy. The data out of the U.S. will remain in focus this week with home sales, durable goods, jobless claims and personal income forecasted to show slight improvements. The FOMC has made it clear that the monetary and fiscal policies will remain in place for the foreseeable future.
Behavioral Biases to Avoid: Endowment Effect
The endowment effect is when an individual assigns a greater value on something he already owns than the value that would be placed on that same object if he did not own it. This is often due to an emotional attachment to the item. In the investment world, an emotional attachment can be formed due to receiving shares of a stock as an inheritance or perhaps being an early investor in an “unknown” mutual fund or ETF.
To counter the endowment effect, one can consider using limit orders on a stock or ETF (when the security reaches a certain price, the shares are automatically sold). Similar to last week’s discussion on loss aversion, one can also consider hiring a financial advisor or professional money manager to manage the portfolio and help remove emotional attachments from the equation.
Last Week's Economic Data June 22nd
|Last Week's Economic Data||Actual||Survey|
|Retail Sales Advance MoM||17.7%||8.4%|
|Initial Jobless Claims||1508k||1290k|
|Existing Home Sales MoM||-9.7%||-5.6%|
|This Week's Economic Data||Release Date||Survey|
|New Home sales MoM||6/23/20||2.7%|
|Wholesale Inventories MoM||6/25/20||0.4%|
|Durable Goods Orders||6/25/20||11.4%|
|GDP Annualized QoQ||6/25/20||-5.0%|
This Week's Economic Data June 22nd
|Interest Rates||Current||WoW||MoM||YoY||US Swap Spreads||Current||WoW||MoM||YoY|
|1 Month Libor||0.18%||(0.9 bp)||+1.1 bp||(222.0 bp)||12-Month||+12 bp||(1.0 bp)||(4.3 bp)||+8.2 bp|
|3 Month Libor||0.30%||(1.1 bp)||(7.2 bp)||(205.2 bp)||2-Year||+7 bp||(0.1 bp)||(2.8 bp)||+9.4 bp|
|6 Month Libor||0.38%||(4.7 bp)||(18.7 bp)||(183.8 bp)||3-Year||+5 bp||+0.4 bp||(1.2 bp)||+8.9 bp|
|12 Month Libor||0.57%||(2.0 bp)||(11.6 bp)||(163.7 bp)||5-Year||+4 bp||(0.6 bp)||+0.1 bp||+10.8 bp|
|Fed Funds Effective||0.08%||(1.0 bp)||+3.0 bp||(230.0 bp)||7-Year||(2 bp)||(0.3 bp)||(1.5 bp)||+8.6 bp|
|SOFR||0.08%||(0.0 bp)||+4.0 bp||(229.0 bp)||10-Year||(1 bp)||(1.1 bp)||+3.4 bp||+35.0 bp|
|US Treasury Yields||Current||WoW||MoM||YoY||30-Year||(48 bp)||(2.6 bp)||+6.5 bp||+39.4 bp|
|12-Month||0.17%||(0.5 bp)||+2.3 bp||(175.6 bp)||Equity Markets||Current||WoW||MoM||YoY|
|2-Year||0.19%||(1.2 bp)||+2.0 bp||(158.0 bp)||Dow Jones||26,290||+1.0%||+7.5%||(1.6 %)|
|3-Year||0.21%||(1.6 bp)||+0.6 bp||(151.0 bp)||S&P 500||3,118||+0.6%||+5.5%||+5.7%|
|5-Year||0.33%||(1.1 bp)||(0.0 bp)||(145.8 bp)||NASDAQ||10,145||+0.9%||+8.8%||+26.3%|
|7-Year||0.55%||(1.8 bp)||+4.1 bp||(136.9 bp)||Currencies||Current||WoW||MoM||YoY|
|10-Year||0.73%||(1.2 bp)||+2.0 bp||(158.0 bp)||Euro||1.1326||+0.6%||+3.9%||(0.6 %)|
|30-Year||1.50%||(1.2 bp)||+2.0 bp||(158.0 bp)||Japanese Yen||106.4100||+0.9%||+1.2%||+0.8%|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY||British Pound||1.2484||(0.7 %)||+2.4%||(2.0 %)|
|12-Month||0.29%||(1.5 bp)||(2.0 bp)||(167.3 bp)||Canadian Dollar||1.3504||+0.3%||+3.6%||(2.4 %)|
|2-Year||0.25%||(1.3 bp)||(0.8 bp)||(148.6 bp)||Australian Dollar||0.6961||+1.0%||+6.4%||(0.0 %)|
|3-Year||0.27%||(1.2 bp)||(0.6 bp)||(142.1 bp)||Swiss Franc||0.9440||+0.8%||+3.0%||+3.0%|
|5-Year||0.38%||(1.7 bp)||+0.1 bp||(135.0 bp)||Israeli Shekel||3.4284||+1.2%||+2.9%||+5.0%|
|7-Year||0.53%||(2.1 bp)||+2.6 bp||(128.3 bp)||Bitcoin||9,641||+1.5%||+8.2%||(11.2 %)|
|10-Year||0.71%||(2.3 bp)||+5.4 bp||(123.0 bp)||Commodities||Current||WoW||MoM||YoY|
|30-Year||1.01%||(3.7 bp)||+8.5 bp||(118.6 bp)||Gold||1,764||+2.2%||+1.7%||+26.0%|
|Crude Oil||41||+7.1%||+23.6%||(28.4 %)|