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Weekly roundup: Is the bond market outperforming stocks this year?

Weekly roundup: Is the bond market outperforming stocks this year?

| September 11, 2020
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We close this week with some quick reminders, some economic indicators, a roller coaster ride, some startling statistics, and Congress still deadlocked on a stimulus bill. As always, please feel free to forward this information to those you feel would benefit.

Personal Tax reminders: 

  • Form 5498 - You may have received a form 5498 in the mail recently. This document proves you made a contribution to an IRA or a Roth IRA, and it should simply be stored with your normal tax folder from the previous year.   
  • Estimated tax payments are due on September 15. If you had stock options, self-employment income, Restricted Stock Units, or stock sales that generated taxes due, you can log on and pay electronically here: IRS Payments

Economic Indicators: Inflation is in the spotlight this week, with a chart of the year-to-date inflation by category (through August 2020). (Jill Mislinski

  • This chart shows that energy/transportation and apparel prices are declining due to lack of demand, while Food/Beverage and Medical Care costs have increased significantly.  
  • Overall inflation remains in the normal to low range, still under the 2% long-term average sought by the Federal Reserve.  

Market Update:  

  • Chills and thrills: If you’ve watched the market too closely, it has likely felt like a rollercoaster lately. The S&P 500 is off about 5% from its recent high point on September 2. Apple led tech stocks down, for a weekly loss of more than 8%. Previously red-hot Tesla stock has lost 27% this month after not being added to the S&P 500 index. In total, the bond market gain of 7% year to date (YTD) is now outperforming stocks again, with the Dow Jones index +1.8%, and the S&P 500 +3.3%. Natural gas and oil prices have fallen for two weeks due to demand woes. 
  • Changes in S&P 500 and Dow Jones indices:  
    • Three companies were added to the S&P 500 index last week: Catalent Inc., Etsy Inc., and Teradyne Inc. The index tracks prices of 500 large companies, comprising about 80% of the U.S. equities market.  
    • In what some analysts called a shocking move, the index makers snubbed Tesla Inc. (TSLA), despite the car company meeting the requirements to be in the S&P 500.  
    • Three long-term members of the Dow Jones Industrial Average were replaced this month as one of the blue-chip index’s biggest shakeup in years: ExxonMobil, Pfizer and Raytheon are out; Salesforce.com, Amgen and Honeywell International are in. The move was made in part to “diversify the index....adding new types of businesses that better reflect the American economy,” according to creators S&P Global. The Dow Jones tracks prices of 30 American companies. 

Thirty-year mortgage rates hit a new low, following the Fed’s sustained low interest rate policy: 

Startling disparities: Job losses have been concentrated in industries such as travel, restaurants, and recreation, which are disproportionately staffed by lower-income Americans, often women and people of color. Employment among those with a college degree has nearly fully returned to pre-pandemic levels.

Government budget and stimulus status update: The House of Representatives passed a $3 trillion stimulus plan in June, but the Senate has not been able to get agreement on any kind of plan. A ‘skinny plan’, meaning spending of less than $1 trillion, was rejected yesterday. Meanwhile, the Federal Reserve has kept interest rates low, which is a form of stimulus. The Fed’s efforts will not be enough to support the economy alone, said Fed Chairman Jay Powell; significant spending is necessary.  

  • Budget deadlines: Congress must act by September 30 to fund the federal government beyond that date. While at one point, it looked like stimulus checks could be added to this bill, it now appears there is an agreement to pass a ‘clean resolution’ that incorporates only the budget.  
  • Recess: Lawmakers are scheduled to head home in October, and there is some pressure to send checks out and/or pass a new stimulus bill before the election. However, there may be a better chance of passing the bill after the election or in January when the new Congress convenes. (Kiplinger
  • Not working so well: The Main Street business lending program, meanwhile, has been a bust. The Federal Reserve announced in April it would lend up to $600 billion to smaller companies, but only $1.1 billion in loans have been issued so far. The program is complex, with more underwriting than the PPP loans. (Axios Capital)  
  • Small business owners need more legislative support. 36% say if no new funding comes from Congress soon, they will lay off workers or cut back hours. (Axios
  • Government debt = no sweat? The reason many people are not worried about the record high government debt is that according to the Congressional Budget Office, the cost of borrowing for Washington is projected to fall to its lowest level in around 75 years and stay that way, as the Federal Reserve pledges to keep interest rates near zero. (Marketwatch)  

As we wish you a wonderful weekend, we stop to remember 9/11 – an event, and lost lives, we will never forget: 

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