Another ho-hum week for the Dow (+0.1%), but not for the NASDAQ (+2.7%) and the S&P 500 (+0.7%), as the latter two are now at all-time highs. Meanwhile, taxable bonds were up fractionally (0.1% - 0.3%), but tax-free muni bonds were down slightly more (about 0.2% - 0.5%). The huge technology stocks continue to lead the way, particularly Apple, which announced a 4:1 split a few weeks back, and has surged an amazing 34% over the past month. Since Apple is one of the few stocks listed on all three indices, and also the largest single component of all three, it’s growth has had a positive impact on all of the indices. The strong gains of Apple and other mega-cap technology stocks cannot be said about the broader market as a whole. According to a report from Barron’s, only 220 of the S&P 500 stocks exhibited a gain last week.
We did see some good fundamental data last week, as the consumer continues to show signs of resilience. The consumer represents almost 70% of the US economy, and retail sales exhibited strong gains, as several retailers reported surging sales that exceeded analysts’ expectations. According to data provided by John Hancock Investments, Target reported is largest sales growth in its 58-year history, due mostly to its online sales (for similar reasons, Walmart exhibited strong earnings the prior week, too). Plus, home sales in July surged 25% compared to June and 9% compared to July of last year. Of course, it can easily be argued that home sale increases are a direct result of pent-up demand due to COVID.
While I continue to believe that the markets may be over priced, it is also important to understand that the values of the indices are being driven by a few large companies. In other words, don’t let the indices be the driver of your investment decisions. I am definitely pleased to see the fundamentals of the markets showing signs of strength, and if we can discover an effective treatment for COVID and effective vaccines, then economic growth may find its way to supporting these lofty index values.