After a promising start to the week — during which the S&P 500 briefly turned positive for the year — the markets hiccuped again as Covid-19 case numbers continued to rise and jobless claims refused to fall. The S&P 500 notched its third straight week of gains, ending the week up 1.3%.
Tech stocks continue to lead market results, as Americans rely increasingly on technology to conduct their lives from home. They have been behind recent gains, but their struggles also contributed to losses this week.
Not only are many people continuing to work from home, but recent headlines show that increasing numbers of children will be learning from home this fall. Many school districts, such as New York City and Fairfax County, Virginia, are offering families a choice between virtual learning or a combination of in-person and virtual learning. Others, such as Los Angeles and Nashville, will start the school year with virtual instruction only.
Virtual schooling may boost tech stocks, but the resulting child-care challenges could negatively affect other segments of the economy, says Dan Eye, head of asset allocation and equity research at Fort Pitt Capital Group.
As Melissa Boteach, vice president of the National Women's Law Center, recently told Make It: "Until we get this public health pandemic under control, there's no economic recovery, there's no safe school, there's no safe child care."
In addition to watching for additional announcements from schools and the employers of affected working parents, investors also have their eyes on several other developments in the coming week. Here's what to watch in and around the stock market during the week ahead — and how the news could affect your bottom line.
The focus for next week will be on second-quarter earnings reports. Coronavirus-imposed lockdowns were in force across much of the country during most of the second quarter, so earning expectations are low for most industries.
"We expect S&P earnings to be down about 45% year over year," Eye says. "So the bar is low, but we'll be looking to gain insight about the future."
What's happening: Some second-quarter earnings reports were released this week, but many "big names" are scheduled to report in the coming week, painting a broader picture of the damage, says Mike Stritch with BMO Wealth Management. For instance, Microsoft (MSFT) will report on Wednesday, July 22, and Amazon (AMZN) will release results on Thursday, July 23.
Expectations for these two companies are high, along with the stock's valuation. "Shutdowns have led to more online purchasing, with Amazon being a clear beneficiary," Stritch says. "Microsoft has been agile in response to Covid, taking this time as an opportunity to assess strategy and close physical storefronts to focus on the strength of its digital offerings. As more people have been cooped up at home and working remotely, the demand for tech solutions has also surged. It's no secret that big, tech-focused companies are driving market returns this year, so all eyes will be on these two bellwethers."
Why it matters: Although strong earnings reports from high-tech giants may lead to positive market movements for the tech sector, that will likely be a short-term reaction. "The bigger picture remains the pace of economic recovery," Stritch says.
Overall, the second-quarter earnings picture is not expected to be rosy. Analysts are predicting a decline in S&P 500 earnings of more than 40%, which "would likely be the worst quarterly year-over-year drop since the global financial crisis in 2008," says Matt Canine, and certified financial planner and senior wealth advisor with East Paces Group. "The market narrative so far is that most will look past the horrid second-quarter numbers and focus on what's ahead, but with many companies deciding to suspend future earnings guidance that may be difficult."
What it means for you: Most market experts are advising investors to look beyond the current numbers and toward the future. To do that effectively, it's important to have a cash reserve and make sure your portfolio is properly diversified and in alignment with your financial plan, says Dean Catino, CFP, president and co-founder of Monument Wealth Management in Alexandria, Virginia.
A strong job market is important both for providing labor supply and fueling consumer spending. While U.S. employers have added jobs the previous two months and initial jobless claims continue to fall week to week, there is still a steep climb ahead, Stritch says.
What's happening: Surging Covid case numbers in many parts of the country are driving short-term market movements. Those rising numbers are fueling second rounds of shutdowns, resulting in more layoffs and furloughs of workers.
"We would not be surprised if there is an increase in jobless claims given the recent surge in Covid-19 cases," says Alano Massi, CFP, managing director of Palm Capital Management, LLC.
Video by Jason Armesto
Why it matters: As investors watch for signs of an economic recovery, an increase in jobless claims is likely to dampen their hopes. A reversal in the downward trend in unemployment claims — or even stalling progress in that trend—could signal a return to the dark, early days of the pandemic instead of a steady return to progress.
The strength of the job market is always an important economic indicator, but as Covid headlines affect the market on a day-to-day basis, it has become even more important. Investors are placing "more weight on the upcoming monthly jobs report following the recent surge in cases," Stritch says.
What it means for you: A stalling job market isn't positive for the market, but it's important to avoid looking at any economic measure in a vacuum. Even though there are new closures and resulting job losses, there is also progress toward developing a vaccine, which was not the case in March and April.
"While it is important to monitor Covid case statistics, which tend to sway markets day to day, don't lose track of vaccine and therapeutic developments as these have potential for greater long-term gains," Stritch says.
The monthly housing report, including existing home sales and new home sales during June, will also be released next week. Most experts expect to see positive numbers.
What's happening: The month of June saw a favorable mortgage rate environment and the reopening of many local economies, so the housing report is expected to be positive.
"This week the Mortgage Bankers Association reported that mortgage applications to buy a new home exploded by 54.1%, compared to June 2019," Canine says. "Clearly, there is robust pent-up demand that is being released as more states open up from the stringent lockdown measures in the spring. We are also seeing a tailwind of record low interest rates allowing some buyers to lock in 30-year fixed rate loans under 3%. New home sales from June are expected to increase 688,000 from the previous month."
Video by Jason Armesto
Why it matters: A strong housing market, especially strong new home sales, has been traditionally a sign of a strong economy. Strong numbers in the housing report can affect investors' confidence in the markets.
But even if the housing report shows positive gains, it's "hard to predict what the market's reaction to this will be," Canine says. "Many of the large banks warned this week that they still have concerns about defaults by consumers going into the next two quarters without further stimulus from Congress."
What it means for you: "The housing market recovery should continue to be a positive signal for the market," Stritch says. "However, as with many metrics, it will take time to return to pre-Covid levels and will not be immune to volatility should cases continue to accelerate."
In other words, it's OK to feel hopeful about strong housing numbers. But investors still need to proceed with caution and stay the course, looking towards a long-term recovery.
Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business, and other topics. Her work appears in several publications, including CNBC.com, Fortune.com, Entrepreneur, Working Mother, CNNMoney.com, and others.
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