Week from 3 to 9 August 20
Stock markets rallied again for the first week of August, propelling the Nasdaq Composite to an all-time closing high on Thursday, above 11k for the first time ever (+2.47% WTD). The S&P 500 also ended the week with a 2.45% gain while the Dow Jones climbed 3.8%. Small cap stocks did even better as evidenced by the Russell 2000 return (+6% week-over-week). However, rising U.S.-China tensions, concerns about a lack of progress in Congress on a new wave of fiscal stimulus as well as a growing number of COVID-19 cases around the globe could have weighed on investor optimism. But nothing of that sort happened.
Market sentiment was boosted by the ISM manufacturing index in July (54.2 in the U.S. vs. 52.6 in June, beating expectations of 53.6). Furthermore, the U.S. Bureau of Labor Statistics reported that total nonfarm payroll employment had risen by 1.8mio in July, compared with a 4.8mio increase in June. The unemployment rate fell to 10.2% but still remained far from the pre-pandemic level.
Elsewhere, European equity markets closed higher in the wake of positive earnings reports and growing manufacturing activity. The IHS Markit Eurozone manufacturing PMI was therefore revised upwards at 51.8 in July (Flash: 51.1, June Final: 47.4). The Stoxx Europe 600 rose 2.03% and the EuroStoxx 50 gained 2.47%.
APAC markets followed suit (S&P/ASX 200: +1.3%, NIKKEI 225: +2.86%, NIFTY 50: +1.27%, Shanghai Composite: +1.33%, and KOSPI: +4.55%).
All the S&P sectors finished the week in positive territory but those considered most exposed to an economic downturn such as industrial companies (+4.76% WTD), financials (+3.26%) and energy (+3.12% with U.S. crude futures up 2.36%) led the surge. IT (+2.94%) and telecom services (+2.97%) also fared well. Despite a pullback on Friday, it is worth noting that big tech stocks continued their run higher, fueled by Facebook (+5.82% WTD), Apple (+4.75%), and Microsoft (+3.64%) which can pursue a deal to buy TikTok, after Trump’s conditional approval.
By contrast, there was little change in interest rates. The yield on benchmark 10-year U.S. government debt rose only 2 basis points at +0.57% like the 10-year Bund yield (-0.51%).
In credit markets, iTraxx and CDX indices were tighter on the week across IG and high yield. This is the sixth positive week in a row for IG bonds.
Lastly, gold rose 2.1% week-over-week to $2,028/oz (nine-week winning streak!), reaching a record high on Thursday ($2,069.40), while EUR/USD traded at 1.1789 (down 0.34% WTD).
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