Markets have traded off in the last few days after strong performance toward the end of last week. The turn comes as uncertainty increases around the timing of stimulus relief and a global increase in COVID-19 cases.
News headlines whipped the market around, but equities found a way to finish higher on the week. The S&P 500 advanced 1.7% led by a 6.9% jump in small caps.
This week saw a strengthening housing market. In August, there were 1.011 million new home sales, which is 4.8% higher than in July. The expectation was for sales of 887,500 new homes.
Equities sold off again this week, taking their cue from weakness that began during the Federal Open Market Committee (FOMC) press conference. The S&P 500 was down 4.4%, while emerging market equities fell 3.5%.
It has been another week with no resolution in congressional stimulus discussions. The positive economic numbers we see may have led to a false assumption the economy is on better footing than it really is.
Equities suffered three days of big losses but were bookmarked by a bounce to end the week. The sell-off lacked an easy scapegoat, but a lot of chatter in the financial markets pinned the blame on excessive option buying in the technology sector, that then gave way to an air pocket once the activity dried up.
The preliminary GDP numbers for the second quarter were released this week. The decline in the quarter was adjusted from 32.9% to 31.7%. A 1% adjustment in GDP growth used to cause panic among economists.
Equities posted strong moves on the week led by large caps and technology. The NASDAQ advanced 4.7% on the week, whereas the small cap Russell 2000 was down 0.7%. Emerging market equities advanced 1.8%.
There was a sharp increase in productivity in the second quarter of 2020. Nonfarm business sector labor productivity increased by 7.3%. However, this number masks some underlying economic weaknesses. Productivity is calculated by dividing output by the number of hours worked.
Equities advanced on the week as small caps and financials lead the way. The rotation out of high-growth stocks again caused a notable performance divergence across the equity landscape. Some of the well-known momentum stocks have suffered sizeable drawdowns over the past couple of weeks.