A fourth consecutive week with gains for the US stock market, with the S&P 500 index and Nasdaq Composite making new record highs and Dow Jones Industrial Average turning positive in 2020. The Fed has mentioned that it would seek to relax the 2% target for the inflation with a more accommodative monetary policy, and low-interest rates which are supportive for stocks. But the valuation of stocks at these new record highs are of major concern. Especially for the reaction of investors towards earnings results of growth or tech stocks propelling them to higher prices after reporting better than expected results but yet losses, compared to other non-tech stocks which reported again better than expected results, and yet plunged. To me, this shows a disconnection of the stock prices with their valuation to a very large extent and is worrying me for a potential stock market correction.

Economic News

The Conference Board (CB) Consumer Confidence Index fell showing less consumer optimism with a figure of 84.8 less than the forecast of 93. This could lead to lower consumer spending and lower economic growth. The housing market shows strength with New Home Sales coming at 13.9% beating the estimate of 1.3%, and also Durable Goods Orders were better than expected with a figure of 11.2% higher than the estimate of 4.3%. The GDP Growth Rate QoQ 2nd Estimate came in at -31.7%, marginally better than the estimate of -32.5%. Still, the labor market continues to show signs of weakness. Both Initial Jobless Claims and Continuing Jobless Claims came in at worse than expected with figures of 1006K and 14535K respectively. The estimates were for a figure of 1000K for the Initial Jobless Claims and 14450K for the Continuing Jobless Claims. The Core PCE Price Index YoY came in at 1.3%, higher than the forecast of 1.2% but still well below the target of 2% that until recently the Fed had set. Most probably the Fed wants to create more inflation.

The United States Durable Goods Orders

“New orders for US manufactured durable goods rose by 11.2 percent in July 2020, recovering further from sharp falls seen in March and April during the lockdown and easily beating market expectations of 4.3 percent. Demand for transport equipment jumped 35.6 percent (vs 19.7 percent in June), due to increases in orders for motor vehicles and parts (21.9 percent vs 85.6 percent) and defense aircraft and parts (77.1 percent vs -29.2 percent). Orders were also higher for electrical equipment, appliances, and components (4.1 percent vs 2.0 percent), computers and electronic products (2.2 percent vs -0.1 percent), machinery (2.0 percent vs 3.7 percent), fabricated metal products (2.0 percent vs 5.7 percent), and primary metals (0.2 percent vs 4.4 percent). Meanwhile, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.9 percent in July, compared to 4.3 percent in June.”

Source: Trading Economics

For the week of August 23– August 28, 2020, the major US stock market indexes closed as follows on Friday, August 28, 2020:

• Dow Jones Industrial Average: Close 28653.87, +2.59% for the week, +0.40% Year-to-date

• S&P 500 Index: Close 3508.01 ,  +3.26% for the week, +8.58% Year-to-date

• NASDAQ: Close 11695.63, +3.39% for the week, +30.35%, Year-to-date

• Russell 2000:  Close: 1578.34, +1.67% for the week, -5.40% Year-to-date

Weekly Stocks Gainers

These are the top 3 gainers, stocks with 5 days of consecutive price advances:

1. Vivopower International Plc (NASDAQ:VVPR), Close 8.25, 5-day change +214.89%

2. Diamondpeak Holdings Corp Wt6 (NASDAQ:DPHCW), Close 6.30, 5-day change +53.66%

3. Party City Holdco Inc (NYSE:PRTY), Close 2.90, 5-day change +45.0%

Weekly Stocks Losers

These are the top 3 losers, stocks with 5 days of consecutive price declines:

1. Altimmune Inc (NASDAQ:ALT), Close 17.62, 5-day change -26.71%

2. Vaxart Inc (NASDAQ:VXRT), Close 6.23, 5-day change -24.21%

3. Capstone Turbine Cp (NASDAQ:CPST), Close 4.20, 5-day change -22.2%

Economic events for the week August 31- September 4, 2020:

Important economic data for the week will be the Markit Manufacturing PMI and ISM Manufacturing PMI, Balance of trade, Weekly Jobless Claims, and mainly the Unemployment Rate and Non-farm Payrolls.

Sources:

Wall Street Journal

Barchart

DailyFx