E US Stock Market Weekly Review July 27- 31

If we want to summarize the US stock market performance with a few words for the previous week, then seven words are enough. These words are “The US economy is officially in recession”. The US GDP growth reported for the second quarter of 2020 showed a 9.5% decline in GDP which is equivalent to a 32% annualized decline.

The good news is that this decline was better than expected compared to the estimate of -34.1% annualized decline. But the bond market is signaling signs of alarm with a rally for bond prices and decline for bond yields. The 10-yr bond yield at close on Friday, July 31, was 0.5360-0.0050 (-0.92%), which is near to the year-to-date lows seen earlier in March when there was an intense selloff for stocks. The stock market reaction to the recession news was muted, and the bond market does not support the economic theory that in a strong economy risk-on mood for investing should send bond yields to lower levels. Bonds are considered safer investments compared to stocks and this is not fully reflected now if all worst economic impacts of the coronavirus are discounted.

Tech stocks continued to move higher, as three stocks beating earnings estimates contributed to the Nasdaq outperforming this week. Apple, Amazon, and Facebook all reported better than expected earnings.

Economic news

The Federal Reserve kept the key interest funds rate unchanged as expected in a low-high range of 0%- 0.25% respectively and stated in its latest press release that “The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

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Disclosure: I have no position in any stock mentioned

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