August 3, 2020

July ended last Friday with a late-day rally producing solid gains in the U.S. equity markets.  The Dow and S&P 500 gained 114.62 and 24.9 points, or 0.44% and 0.77%, respectively.  Big tech reported better-than-expected earnings, pushing the NASDAQ up 157.47 points, or 1.49% for the day.  July was also the fourth month in a row of solid equity performance, recovering from the bear market low of March 23.

As for the S&P 500, the most commonly used benchmark of U.S. large cap equities, gained 1.7% last week, 5.5% for July and 1.25% 2020 year-to-date.

July’s outstanding equity performance comes amidst economic data showing the cratering of gross domestic product (GDP) in the 2nd quarter, declining a whopping 32.9% but beating analysts’ expectations of a decline of almost 35%.  One might anticipate the equity markets to react very negatively to that kind of news, but a decline of that magnitude was largely expected and for the most part overlooked.  The negative 2nd quarter GDP signals that the U.S. is in a technical recession, defined as two consecutive calendar quarters with negative GDP.

Today’s focus seems to be on the wrangling in Washington over how best to handle supplementary unemployment benefits – payments in excess of normal state-provided monthly benefits.  The $600/week supplemental payments ended last Friday, and lawmakers are all but at an impasse.  Democrats want to continue the $600/week extra benefit through the end of 2020, while Republicans see a disincentive to work when total unemployment benefits exceed a worker’s regular pay.  Some have suggested a tapering of supplemental benefits, reducing at the rate of $100/month.  Lawmakers will be back at the bargaining table this week in an effort to come to an agreement.

In the moments before the opening bell this morning, all three U.S. equity indices are showing a modest gain at the open.