Market Watch: July 31

Markets reversed yesterday’s losses as the Federal Reserve left interest rates near zero and confirmed that it would continue to provide support as it is “the most severe economic downturn in our lifetime.” In addition, investors were still waiting on the details on a possible government stimulus program as the latest round is set to expire. By Wednesday’s close, all four major N.A. indexes ended in the green, with the Dow up 160 points.

U.S. Q2 GDP took center stage as it decreased at an annual rate of 32.9 per cent, slightly better than estimates but still the largest fall since records began in 1947. Almost all categories posted sharp declines, led by personal consumption expenditures which represent more than two thirds of U.S. economic activity. U.S. equities sank on the news.

U.S. markets mixed, Canadian equities posted another solid week

For the four days covered in this report, the Dow dropped 272 points to close at 26,314, the S&P 500 rose 7 points to settle at 3,258, while the tech-heavy Nasdaq rose by 52 points to close at 10,588. In Canada, the TSX increased by 138 points to end at 16,299.

Strategy

U.S. Federal Reserve sticks with recent tone in July

The Federal Open Markets Committee (FOMC) left its policy mix unchanged on Wednesday and vowed to use all its tools to support the recovery from “the most severe economic downturn in our lifetime.” Still, Chairman Jerome Powell highlighted that the path forward for the economy is extraordinarily uncertain and will depend principally on the success of the public health response in keeping the virus contained. Mr. Powell outlined that even if reopening’s go well, and workers return in troves, it will still take a long time for parts of the economy to return to their pre-pandemic levels. The recovery has been and will likely continue to be uneven, the housing sector was highlighted as one bright spot.

But, on balance, recent economic data releases point to a slowing in the pace of recovery. Committee members were likely discouraged by the resurgence of COVID-19 cases in many Southern states, highlighting the degree of vulnerability in the economy and underscoring the challenges policymakers face given the unknowable path the disease may track. In its statement, the FOMC repeated that the pandemic “poses considerable risks to the economic outlook over the medium term” and that the federal funds rate would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

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Market Watch: July 31

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