Weekly Market Review – August 9, 2020

The stock market started the first week of August with a positive tone. The economy continues to recover from the pandemic-triggered recession. Both manufacturing and service sectors show robust rebound according to Institute of Supply Management. The second quarter GDP declined by a 33% annual rate, the worst since the Great Recession but in line with expectation. 1.8 million jobs were added in July and the unemployment rate dropped to 10.2%. 

New relief package in discussion

The $600 per week has expired at the end of July. Republicans and Democrats are looking to make a new jobless aid bill. Both sides have agreed on another round of direct payments up to $1,200. On Tuesday, both parties tried to come up with an agreement. They agreed on extending funding for the Paycheck Protection Program loans for small businesses. However neither side has budged on unemployment insurance and financial aid to state and local governments. 

Important financial and business news

President Trump plans to announce new actions against Chinese software that his administration views as a threat to national security. The State Department Chief cited that TikTok and WeChat were giving users’ data directly to the Chinese government. TikTok and WeChat developer Tencent responded, saying that the company keeps users’ information private. Microsoft emerges as a potential buyer of Tiktok, after speculations that the US would divest from it. Trump has made an ultimatum to the owner of TikTok, Zhang Yiming, to sell the app’s US operations or leave the country. If Yiming complies with this ultimatum, China will lose control over its only true global internet sensation. According to a report from Axios, Apple also expressed interest in buying TikTok, but the information was not found from sources inside of Apple. However, Apple has denied interest in acquiring TikTok. 

On Monday, Nasdaq rose 1.3%. Microsoft rose 4.4% and Apple rose 4%, leading the market upwards. Microsoft will potentially buy TikTok, explaining the increase, and Apple purchased the electronic startup Mobeewave for $100 million. Apple is being sued for $1.4 million over a Chinese AI company for patent infringement over Siri. On Wednesday, the Dow gained 280 points, or slightly over 1%, and the S&P 500 rose 0.5%. Both have had four consecutive days with positive gains. Part of this was because Disney had a strong earnings report. Despite having a 42% drop on quarterly revenue, Disney has adapted through online streaming, such as Disney+, Hulu, and ESPN+, with over 100 million paid subscribers. Disney shares rose 10.7%.

Lord and Taylor filed for bankruptcy protection on August 2nd. The department store had closed all of its brick and mortar stores in March because of stay-at-home orders, leaving Le Tote, the owners of the retailer, unable to pay expenses. Neiman Marcus had filed for bankruptcy protection earlier this year, and this shows that department stores are increasingly under financial strain. 

Explosion in Beirut

On Tuesday, a large explosion at the Port of Beirut occurred, killing at least 137 people and injuring 5,000 others. A fire with white smoke at a warehouse on the port was seen before the explosion, which evolved into a mushroom cloud. The blast was equivalent to a magnitude 3.3 earthquake, and caused extensive damage to the warehouses and grain silos. An estimated 300,000 people have been made temporarily homeless. The damage may cost $10-$15 billion. 

The explosion could be attributed to a shipment of 2,750 tons of ammonium nitrate that was stored unsafely in the warehouse that had the fire. 

The explosion exacerbates Lebanon’s existing economic problems. Its public debt to GDP ratio was the 3rd highest in the world, the unemployment rate was 25%, and one-third of the population lived below the poverty line. There was a Ponzi scheme started by the Lebanese central bank, which was borrowing from commercial banks at above-market interest rates to pay off its debts and maintain the Lebanese pound’s fixed exchange rate with the US dollar. 

Job gains continued

The unemployment rate for July is 10.2%. This was a drop from 11.1% in June and also below 10.5%, the market expectation. Businesses are starting to rehire employees and the reopening has helped people find work. The US economy ended up adding 1.8 million jobs in July. The unemployment rate has fallen for the third month. 

Economic news this week

On Wednesday, the Bureau of Labor Statistics will report the  Consumer Price Index number, which is expected to show 1.1% year-over-year inflation rate. On Friday, retail sales will be released. Investors will get a sense about how consumers are holding up during the pandemic. 

Earnings reports this week

Q2 earnings season so far has been positive. Marriott International’s earnings this week will provide some insights on the state of travel industry. Cisco Systems and Applied Materials will report as well.