Given the multiplicity of factors elevating uncertainty in today's environment, we are reminded that in order to fully recover a -35% loss, a portfolio must subsequently return +35% and then an additional +14%. The hurdle for recovery from large losses is high. While risk assets may still be attractive, portfolios assembled in a risk-aware manner may help to reduce volatility and narrow the recovery gap.
US equities moved higher last week on the back of impressive mega-cap earnings that offset another increase in initial jobless claims dimming hopes of a strong economic recovery. On the fiscal front, US phase 4 stimulus talks have made little progress amid partisan politics. The S&P 500 ultimately finished the week up 1.75%. Global markets traded lower as political risks from the US intensified and European earnings were largely mixed. The Euro Stoxx 600 and FTSE 100 closed down -2.98% and -3.68%, respectively. Read More
Weak economic data and surging virus cases kept oil prices in check last week, despite US crude oil inventories dropping by 10.6 million barrels. WTI prices fell -2.50% while Brent held steady. Meanwhile gold climbed 3.15% to hit an all-time high of $1986 per troy oz last Friday, on the back of a weaker USD. Read More
Global yields continued to fall last week as weak economic data added to fears that the economic recovery may be slowing. In the US, political tensions and a record GDP contraction for the second quarter sent 10-year Treasury yields down 5 basis points (bps) to end the week at 0.54%. Similarly, German 10-year Bund yields fell 7 bps to -0.52% on a worse-than-expected record fall in GDP. In the UK, 10-year Gilt yields touched a record low of 0.07% intraday as the country re-imposed partial coronavirus-related restrictions in some regions and considered delaying further reopening. Read More
The US dollar index ended the week down -1.60%, sliding to a two-year low as falling yields and increasing US coronavirus cases sent investors to seek safety in other currencies. The pound and euro climbed steeply against the dollar, ending the week up 2.45% and 1.30% respectively. Read More
The first print of US Q2 GDP revealed a -32.9% quarter-on-quarter (QoQ) annualized decline, the sharpest in the post-war era. A collapse in personal spending (-34.6%), business investment (-27%), and residential construction (-38.7%), was partly offset by the surge in federal spending (+17.4%). Meanwhile Euro area Q2 GDP contracted by -12.1% QoQ with greater than expected declines in Germany (-10.1%) and Spain (-18.5%), and smaller than expected declines in France (-13.8%) and Italy (-12.4%). Read More
In the US, inflation was slightly weaker than expected in Q2. Core PCE inflation was -1.1% annualized, below consensus estimates of -0.9%. Meanwhile in Europe core CPI inflation rose 1.2% Year-on-Year, above expectations. Read More
US consumer confidence surprised economists by falling more than expected in July amid renewed virus concerns. The Conference Board index fell to 92.6 from 98.3 in June due to a drag in short-term expectations. The University of Michigan Consumer Sentiment index also fell to 72.5 from 73.2 the month prior. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
US ISM Manuf. (Cons: 53.5, Prior: 52.6)
US ISM Serv. (Cons: 55.0, Prior: 57.1)
US Jobless Claims (Cons: 1415k, Prior: 1434k)
BoE Bank Rate (Cons: 0.1%, Prior: 0.1%)
US Unemp. Rate (Cons: 10.5%, Prior: 11.1%)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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