Thrivent Asset Management Contributors to this report: Mark Simenstad, CFA, Chief Investment Strategist; Steve Lowe, CFA, Vice President, Mutual Funds-Fixed Income; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager

The U.S. economy experienced its biggest drop in history in the 2^nd quarter as gross domestic product (GDP) contracted by 32.9% amid the Covid-19 pandemic. Unemployment began to decline from historically high levels in July, although nearly 3 million Americans filed new claims for unemployment in the final two weeks of the July. 

Despite the economic downdraft, the stock market has remained strong. The S&P 500® index moved up 5.51% in July and has rebounded by a whopping 46.20% since bottoming out at 2,237.40 on March 23. Over the past 12 months, the S&P 500 index has posted an annual return of 13.77%. 

The market performance has been bolstered by the unprecedented action of Congress and the Federal Reserve (Fed), which have injected trillions of dollars into the economy to help keep businesses afloat and provide emergency income for laid-off workers.  

Oil prices have continued to recover from a deep slump earlier in the year, as motorists have begun to return to the road. While travel by auto and airline has picked up in recent months, it is still well below previous levels, contributing to a global oil surplus.

Drilling Down

U.S. stocks continue to rise

The S&P 500 index was up 5.51% in July – from 3100.29 at the June close to 3271.12 in July – recovering much of the lost ground from a steep March slump. For all of 2020, the S&P 500 Index is up 1.25%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The total return of the S&P 500 index (including dividends) was up 5.64% for the month. It is up 2.38% for the year.

The NASDAQ Index also had a strong July, up 6.82% for the month. It was up 19.76% year-to-date. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales begin recovery

Retail sales continued to recover in June from a steep drop earlier in the year when many businesses across the U.S. were closed as part of the pandemic lockdown. 

Total retail sales were up 7.5% in June from the previous month, according to the Advance Monthly Sales report from the Department of Commerce issued July 16. However, total retail sales for the 3-month period of April through June were down 8.1% from the same period a year ago.

Automobile sales continued to rebound in June, up 8.2% from the previous month, and up 7.5% from a year earlier. Electronics and appliance stores also continued a strong recovery, up 37.4% from the previous month, but still down 12.7% from the same period a year earlier.

With many bars and restaurants reopening, food services and drinking places were up 20.0% from the previous month, but still down 26.3% from a year earlier. 

Non-store retailers (primarily online), which experienced strong growth early in the pandemic, saw a small decline in June of 2.4% from the previous month. However, sales were still up 23.5% from the same period a year earlier. 

Unemployment remains high 

Although many Americans have returned to work, the high rate of new unemployment claims has persisted. According to the Department of Labor, in the week ending July 25, a total of 1.43 million new unemployment claims were filed, which was slightly higher than the previous week’s total of 1.42 million claims.

The advance seasonally adjusted insured unemployment rate was 11.6% for the week ending July 18, an increase of 0.5% from the previous week. In all, more than 50 million American workers have filed for unemployment during the Covid-19 pandemic.

GDP drops as economy contracts

Amidst the pandemic lockdown, GDP decreased at an annual rate of 32.9% in the 2^nd quarter following a 5.0% decline in the 1^st quarter, according to the advance estimate released by the Bureau of Economic Analysis on July 30. The largest decline in GDP prior to this was a 10% decline in 1958. The government began tracking GDP growth in 1947.

According to the report, the decrease in GDP reflected decreases in personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending.

The U.S. dollar has also been reeling versus other currencies. The U.S. Dollar Index, which measures the dollar against a basket of leading currencies, lost 4.14% in July, its largest monthly drop since September 2010. It is down about 10% from its peak in March. The decline has been attributed to a variety of factors, including the severity of the pandemic in the U.S., the massive infusion of money into the economy by Congress and the Fed, and geopolitical tensions between the U.S. and China. 

Most sectors gain in July

All but one of the 11 sectors of the S&P 500 index made gains in July. The Energy sector was the only one with a loss, down 5.13% for the month. Energy is down 38.65% through the first seven months of 2020.

Consumer Discretionary was up 9.0% in July, followed by Utilities, up 7.81%, Materials, up 7.07%, and Consumer Staples, up 6.97%.

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields dip again

The yield on 10-year U.S. Treasuries dropped in July to its lowest level since the government began offering bonds in 1790. Yields seemed to have stabilized after a precipitous decline in the 1^st quarter that was attributed to two significant cuts in the Fed funds rate by the Fed and to an increase in bond demand as investors sought a safe haven amidst the market turbulence.

But the yield dropped by 0.11% in July to just 0.54%.

Oil prices continue to recover

Oil prices have continued to recover off historic lows, as drivers have begun returning to the road, helping to narrow a wide gap between supply and demand. 

West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, was up 2.55% in July, from $39.27 at the June close to $40.27 at the end of July.

International equities rebound

As businesses around the world began to reopen, the global stock market continued to rebound in July from a significant drop in March. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Asia and Australia, was up 2.23% in July, although it is still down 10.64% year-to-date.

Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com