Weekly Market Review – August 16, 2020

Improved economic data drove the cyclical stocks higher. The initial jobless claims dropped below 1MM, first time since the start of lockdown. Retail sales rose 1.2% from last month. Industrial production grew 3.0% in July. 

Trump’s Executive Order on Relief Package

Trump issued an executive order after talks with Pelosi and Schumer broke down. The Democrats demanded $800 billion in aid to states and a continuation of the $600 per week jobless insurance payments into 2021. Trump plans to reduce jobless insurance payments to $400 per week, and states are required to pay 25% of the aid. Individuals can only receive the 75% from the federal government if they first qualify for aid from their state. Payroll taxes will be deferred until December 31st, for Americans earning less than $104,000 a year. 

Weekly unemployment claims fell to 963,000 in the week ended August 8th, the first time since March that unemployment claims fell below 1 million. 

China Sanctions US Officials

China sanctioned 11 US officials, including Senators Marco Rubio and Ted Cruz. This comes after these two senators and others penalized senior Chinese officials over China’s treatment of the Uyghurs in Xinjiang Province. The sanctioned US officials have all been hawkish on China. The Chinese Foreign Ministry has not offered details on what the sanctions would entail. 

Russia’s First Vaccine

On August 11th, Russia registered the world’s first coronavirus vaccine. Some health and pharmaceutical officials have expressed concern over the speed in which the vaccine was developed at the Gamaleya Institute for Epidemiology and Biology in Moscow. Scientists had employed tests on soldiers and had quickened trial times to be the first ones with the vaccine. This method diverges from traditional vaccine testing methods, where the vaccine is first tested on small groups of healthy volunteers, and tested on progressively larger groups. The traditional method can take years to develop a vaccine. Kirill Dimitriev, the head of Russia’s Direct Investment Fund, which partnered with the Institute, said Russia had followed all necessary safety protocols. 

Israel and the U.A.E Establish Diplomatic Ties

Israeli Prime Minister Benjamin Netanyahu, Abu Dhabi Crown Prince Mohammed bin Zayed al Nahyan, and President Trump created a pact establishing formal diplomatic relations between Israel and the United Arab Emirates on Thursday. Saudi Arabia and other states in the region may be pressured to establish similar pacts, influenced by the US. Since Trump’s pulling out of the Iran nuclear accord, Middle Eastern states have to choose sides, and Iran is growing increasingly isolated. 

Stock Market News

On Tuesday, the Dow rose 272 points, or 1% and the S&P 500 rose 0.4%, and it is about to reach a new record high. Local news agencies reported Vladimir Putin claimed Russia had been given regulatory approval for the world’s first COVID-19 vaccine. Although  Russia has not actually completed the final trials, investors were optimistic. American Airlines gained 3%, Norwegian Cruise Lines gained 6.2%, and Gap shares rose by 6%. These companies are most likely to benefit from a vaccine, which means people will then be able to travel. However, major tech shares did not benefit as much from the optimism. Apple, Netflix, and Microsoft fell 0.8%, while Amazon and Alphabet were flat. On Wednesday, major tech shares recovered, gaining between 1-2%. The Dow rose 244 points, or 0.9%. Tesla will do a five-for-one stock split, which will encourage new investors to invest in the company. 

Biden Picks Kamala Harris as Vice President

Joe Biden has chosen California Senator Kamala Harris as his running mate. Senator Harris had been a rival against Biden in the primaries, but the Biden campaign hopes that working with her would help them appeal to a more diverse group of voters. Harris used to be California’s attorney general, and worked with Joe Biden’s son Beau Biden when they negotiated a settlement with the banking industry over mortgage practices that preceded the foreclosure crisis. 

Kamala Harris is more of a moderate Democrat, who is reluctant to over-regulate businesses when reopening the economy is a larger issue. 

Economic News This Week

Housing starts will be released on Tuesday and investors expect a healthy housing market given the record low mortgage rates. 

Earnings News This Week

Big box retailers will report earnings. Walmart, Home Depot, Target and TJX are expected to have solid earnings as they all benefit from the pandemic lockdown.