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V-Shaped Recovery in Question with Cases on the Rise

Weekly Update – July 03, 2020

  • Last week, confidence in a V-shaped economic recovery and progress toward a coronavirus vaccine overshadowed spiking COVID-19 cases across the south, leading to a 3.0% gain in the S&P 500 in the holiday-shortened week. The benchmark index closed on Thursday at 3,130.01 versus last Friday’s 3,009.02.
  • Wall Street applauded data on home sales, consumer confidence, and the labor market even as Florida, Arizona, and Texas emerged as the new epicenters of the virus and put phase 3 reopening plans for the holiday weekend at risk. Restaurants, bars, and gyms were closed or had their reopening plans dialed back as confirmed cases and hospitalizations increased.
  • Development on a vaccine also helped dull the impact from COVID-stats after Pfizer (PFE) and BioNTech (BNTX) announced promising results from their clinical trials of one of seventeen currently COVID treatments being developed across the globe.
  • The surprise revision in May private payrolls was eclipsed Friday by a 4.8 million increase in June non-farm payrolls, giving investors hope that the fallout from the shuttered economy will dissipate in the second half of the year. As a result, all eleven sectors of the S&P closed higher with measurable gains in communication services taking the lead spot, up 5.2%.
  • The popularity of streaming services during the pandemic put Netflix (NFLX) at the top of the communication services sector with a gain of 7.6% from last Friday. Wall Street analysts conceded that the company was well-positioned to hike prices next year as the economy improves.
  • The consumer discretionary sector closed more than 4.7% higher as well. Takeover speculation continued to prop up shares of L Brands (LB), lifting it to the top of the rankings with a 9% gain. And thanks to a 10-year partnership with Kanye West and his Yeezy fashion line, The Gap (GPS) saw its shares driven 1.7% higher.
  • Outsized gains were also posted in defensive sectors like real estate (5.6%) and utilities (4.9%) even in the substantial risk-on environment.
  • Tech stocks gained a collective 3.7% with all but 15% of the stocks in the sector closing the week in the green. PayPal (PYPL) was vaulted towards the top of the list with a 3.7% increase as consumers step-up their online purchases, and as Venmo emerges as a key player in the digital wallet industry. The stock has closed higher for nine consecutive weeks.
  • Led by gains in FedEx (FDX) which reported better-than-expected results, the industrial sector was up by a more modest 4.3% by comparison but more than enough to erase last week’s 4.0% loss.
  • Banking stocks limped into Thursday’s close as the sector remains compromised by diminished demand for consumer loans, as well as the Federal Reserve’s restrictions on banking dividends to protect capital levels. But thanks to strength in insurance stocks, the financial sector held onto a 1.7% gain for the week.
  • The economy dominated trade this week as Wall Street digested better-than-expected pending home sales, a big jump in consumer confidence, and 5.8 million reversal in private sector jobs. The latest data culminated with a record 4.8 million increase in June non-farm payrolls which pushed the employment rate down 11.1% from May’s 13.3%.

CPWM Weekly Market Monitor (2020.07.03)

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