For most Americans, the coronavirus pandemic has left a long-lasting scar that has yet to heal. Millions of people have been quarantined, jobs have been lost, children have gone without schooling, and there remains no certain end to this global pandemic. Yet, amidst all of the pain on main street, markets continue to climb and investors remain optimistic about the future. This can be seen in the continued growth of domestic equities markets, where tech stocks like Apple, Google, and Amazon continue to lead the charge. Testing for the first Phase 3 clinical trial of a vaccine for the coronavirus has begun, bringing the country closer to eradicating this issue from the globe entirely. Outside of the virus, tensions between the US and China are at an all-time high. Consulates were closed in Houston and Chengdu, leading many to wonder if this will reignite a trade war between the two nations. Given the unpredictable nature of the pandemic, it is impossible to know whether the economic devastation and social unrest will derail the market recovery. And so the best approach is to remain invested but with caution and diversification as we continue to weather the storm.
Unemployment is still a problem
Even as the domestic economy began to open in the summer, unemployment remained a concern. For the week ending July 18th, Americans filed more than 1.4 million unemployment claims (seasonally adjusted), up by 109,000 from the week prior.
Gold hits a record high
With so much uncertainty in the world, investors are fleeing to the safe-haven of gold. As a result, gold prices hit record highs, above $1,933 per ounce, for the first time ever. This is a 27% jump in gold prices year-to-date. But it’s not just uncertainty that’s driving gold prices. The United States has kept interest rates low in order to help jumpstart an economic recovery. But as a result, investors who would have otherwise been happy with the yield from government bonds now are looking elsewhere to invest, and gold has become their main target. Additionally, fears of inflation have sent many investors to gold and away from the US Dollar, which could be devalued over time if inflation becomes a bigger issue.
The virus isn’t affecting stocks as much as expected
Many expected stocks to take a huge hit when the coronavirus caused the economy to contract. However, estimates show that even with the virus, corporate cash flows aren’t impacted to the extent previously thought. Zooming out to a long-term view, corporate cash flows will dip in the coming year and possibly into 2021 and 2022, but will likely recover quickly, and as a result, won’t have a significant effect on share value in the long run.
Articles We’re Reading
Fed won’t be happy with how the economy is performing, but is not perturbed enough for aggressive action … (link)
Loss of international students could damage US economy, experts say …(link)
Climate change: Summers could become ‘too hot for humans’… (link)
For the Month Ending 7/31/2020 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
The origination of vaccines
The first vaccine ever developed is credited to Edward Jenner who, in 1776, developed a method to fight against the smallpox virus by inoculating a small amount of the virus into another human. Two years later, a widespread vaccine was developed for that same virus, saving countless lives in the process…(link)
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
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