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September 3 update: Coronavirus and the markets

September 3 update: Coronavirus and the markets

September 06, 2020
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The market rally showed little sign of abating this week. This performance was fueled in part by the August U.S. manufacturing activity report, which showed manufacturing expanded at the fastest clip since late 2018. Notable strength in new orders was seen in areas like electronics and food and beverages – no doubt benefitting from the continued work-from-home trend. Conversely, demand for petroleum and coal products weakened.

Another tailwind for stocks was a historic shift in Federal Reserve (Fed) policy announced last week: Going forward, the Fed will let inflation run a little higher than in the past in an effort to better sustain employment growth. This means that interest rates are likely to stay lower for a longer period of time. Longer-dated Treasury bonds initially sold off on the inflationary side of this news but have since recovered.

The markets even shrugged off the August private payroll numbers, which came in well below consensus expectations. While economists had predicted 1.17 million added jobs, companies only added 428,000. The strongest job gains were seen in areas hard hit by the pandemic, such as hospitality and leisure. Important areas such as education and health services also saw job growth. However, overall gains have yet to get employment back to pre-pandemic levels.

The Dow Jones Industrial Average and S&P 500 Index both had the best August since the mid-1980s. This is not insignificant – August has historically been a less-than-stellar month for the markets as investors go on vacation. As we all know, however, 2020 has been a rather atypical year. With fewer people willing to hop on a plane and travel due to COVID-19, greater attention has been placed on stocks than what might normally be the case – which likely helped stocks reach record after record in August.

Stay safe and be well.

The Dow Jones Industrial Average and S&P 500 are unmanaged indexes that cannot be directly invested into. Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.