Job Recovery Continues, But Relief Talks Stall

The S&P 500 flirted with its pre-pandemic high during a relatively quiet and mostly positive week for economic data. Precious metal prices took a breather from a recent rally while longer-dated bond yields made a notable push higher, steepening the yield curve.

Former vice president and presidential candidate Joe Biden confirmed on Tuesday that California Senator Kamala Harris will be his running mate. Harris is a former prosecutor and a recent contender for the Democratic presidential nominee.

With conventions (adapted to COVID-19 norms) upcoming, presidential campaigning will quickly shift into top gear — we’re less than 80 days away from election day. Add stalled coronavirus relief talks and growing tensions over tech with China to the mix, and you can expect a brew of political uncertainty to linger over markets in months ahead. However, like trade tensions in 2019, we expect politically driven tension to sort itself out with time. In other words, it’s a fool’s errand to trade or time the markets around based on the shifting winds of politics.

We continue to see positive data on both the economic and virus fronts that suggest the financial landscape is improving as we look toward the fall. While there will be a lot of noise, that’s the underlying current we’ll be watching.

WALL STREET WRAP

Labor Market Continues Measured Improvement: On Monday, the Bureau of Labor Statistics’ June JOLTs report showed job openings increased nearly 10 percent sequentially to 5.9 million. The largest growth came in hotel/food industries and other services, with the Northeast and Midwest regions showing the highest improvement. This marks the second-consecutive monthly increase in the headline number, and it’s encouraging to see renewed hiring interest in the hard-hit services sector.  

Thursday’s weekly initial jobless claims report was also upbeat, falling below 1 million for the first time since the pandemic began.

On the other hand, the National Federation of Independent Business (NFIB) Small-Business Optimism Index was less rosy. The headline figure decreased slightly in July to 98.8 (from 100.6), as only 4 of 10 components increased. The survey showed that uncertainty among business owners increased, although they still planned to create more jobs in the future.

Inflation Creeps Up: On Tuesday, July PPI data showed that producer prices increased from the previous month, a reversal from May’s declines. The increase appeared both on a headline level and after backing out more volatile food and energy prices. Wednesday’s monthly CPI showed both core (stripping out food and energy) and overall were up 0.6 percent from June. That brings the year-over-year rise to 1 percent (overall) and 1.6 percent (on core)

Federal Reserve Chairman Jerome Powell has made it abundantly clear that interest rates are not going up any time soon. Though inflation exceeded expectations, current data remains modest by historical measure. The central bank has been vocal about hitting, and sustaining, its 2 percent inflation target, and even when that occurs the Fed will likely let it run higher for some time before thinking about a rate hike. Still, this is one metric we’ll be watching a little more closely in the intermediate to long term.

A Quick Coronavirus Update: Russia announced on Tuesday that it approved the first vaccine for COVID-19, albeit before the results from final clinical trials have been received. The results have been met with broad skepticism, even suspicion.  

Back at home, Moderna received a second pledge to buy $1.53 billion of its vaccine, should it prove successful. Scientists at the University of California San Francisco also claimed this week to have developed an antiviral nasal spray that helps to protect against the disease.

The U.S declined Russia’s offer to help with vaccine efforts and there are currently six other potential candidates in Phase 3 clinical trials across the globe. As we’ve been saying for months, unprecedented progress toward antiviral and vaccine efforts with COVID-19 are a major reason we believe the economic outlook will continue to recover as we head into 2021.

July Retail Sales Moderate, Still Beat Expectations: Friday’s report of U.S. monthly Retail Sales showed 1.9 percent sequential core growth (excluding automobiles) in July and exceeded expectations. The previous result from June was also revised up to 8.3 percent growth. Importantly, sales are now higher than where they were before COVID-19 — we’ve surpassed a V-shaped recovery. While consumers are still spending, they’re spending differently as certain sectors are recovering slower than others.

The largest improvement last month was from non-store (primarily Internet) and food/beverage stores, but brick-and-mortar retail locations also posted gains. We’ll hear more detailed reports at the company level from key retailers next week; but this data is confirmation that consumers, a key component of the U.S. economy, are doing well.

THE WEEK AHEAD

Latest Housing Report Cards: We’ll get multiple looks at the state of the U.S. housing market this week, beginning with the August National Association of Homebuilders (NAHB) Index on Monday. Looking back at July, data will also be posted on Building Starts/Permits and Existing Home Sales.

Despite an uptick this week, interest rates remain historically low. As the employment outlook continues to rebound, we’ll be encouraged if there’s a resulting follow-through in housing activity. 

Real Estate is a regional (and often hyper-local) market, but it is one asset class and area of the broader economy that has consistently remained strong since March. 

Regional Business Indicators: Speaking of regional markets, this week offers a look at the August Empire State Manufacturing index (New York) and Philly Fed Index. The Empire index bottomed in April and has been steadily increasing since. On the other hand, the Philly index slowed but still posted a relatively strong read in July.

Also on Our Radar: The bulk of Earnings Season is behind us, but several key retailers will post quarterly results this week. The likes of Home Depot, TJX and Walmart will give us reads on multiple areas of consumer activity.

Finally, the minutes of the latest meeting of the Federal Open Market Committee (FOMC) will be released on Friday. This report offers a look behind the curtain about key decisions to help stimulate the U.S. economy. 

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