Week Ending: August 28, 2020
U.S. stock prices advanced again last week as the S&P 500 Index is on track to record it’s best month since April. Large company stocks generally outperformed their small and medium sized peers and growth stocks outperformed value. Communication services, information technology, financials, and materials outperformed and more than offset weakness in the utilities, health care, real estate, and energy sectors. Developed foreign stocks in Europe and Asia lagged U.S stocks while Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields rose this past week (bond prices and yields move in opposite directions) as the Federal Reserve announced substantial changes to their interest rate policy. The Fed will no longer raise rates based on surveys of expected inflation and instead will wait until inflation is realized. This change will effectively allow for periods above its 2% inflation goal to offset periods below the target. High yield (below investment grade) corporate bonds were the top performing segment followed by investment grade corporate bonds. Investment grade corporate bonds are yielding approximately 2% and high yield corporate bonds are yielding more than 5.3%.
Economic data was largely overshadowed by the Fed’s announcement of changes to their interest rate policy framework. Initial unemployment claims declined from the prior week to just over 1.0 million. The number of unemployed Americans filing continuing claims fell and reached a new low (14.5 million) that has not been observed since early April. Leaders in France, Spain, and Italy appeared to reject the need for nationwide lockdowns to reduce what may be a second wave of coronavirus infections. Meanwhile, German business sentiment strengthened for the fourth consecutive month, signaling a strong rebound in economic activity in the third quarter.