Weekly Investment Newsletter (STIREP) – July 20, 2020

The U.S. stock market experienced a brief role reversal last week – the year-to-date winners took a breather while the laggards for the year took over. We have seen temporary bouts of this occur during the year, but they remain short-lived. The S&P 500 returned to the high end of its recent trading range and near the level at which we started the year. The markets continue to battle higher COVID outbreaks, social unrest around the country, political uncertainty in an important election year, economic recession, and depressed quarterly earnings – traditional market historians liken this to “climbing a wall of worry”!


The major U.S. indexes ended the week mixed.  Nothing “mixed” about the benchmark large cap S&P 500 index, however, which marked its third consecutive week of gains and reached levels not seen since the market sell-off began in late February.  The Dow Jones Industrial Average rose nearly 600 points to finish the week at 26,672, a gain of 2.3%.  The technology-heavy NASDAQ Composite retreated -1.1% following back-to-back weekly gains of more than 4%.  By market cap, the large cap S&P 500 added 1.2%, while the mid cap S&P 400 and small cap Russell 2000 each gained 3.6%.1

Source: J.P. Morgan Asset Management, Weekly Market Recap, 7/20/20


Small company stocks have underperformed for most of 2020. While the S&P 500 is nearing a resistance point close to the June 8th high, the small company index (Russell 2000) is far from its own June 8th high. Further, last week saw a reversion of recent trends as technology and consumer discretionary traded lower while industrials and materials moved higher. These kinds of divergences suggest caution is warranted in the markets.2 Analysts would prefer to see sectors moving together in the same direction and broad participation to assume the recovery in stocks is moving forward.

Source: J.P. Morgan Asset Management, Weekly Market Recap, 7/20/20


The market indicators moved up nominally last week showing continued strength over all time periods. The short-term indicator inched up three points yet remains short of levels seen in early May. The long-term indicator is in bullish territory but is still 10 points below levels seen in February before the market correction. Our investment committee watches the BOSS indicator closely given its recent accuracy when markets turned down. Demand trends in specific asset classes continue to favor large companies in the growth and blend categories. The weakness in small companies is also reflected in our market indicators.


The S&P 500 Index is nearing the breakeven point for 2020 but has traded sideways since late May between 3,000 and 3,200. The recent surge has taken the index back to the higher end of this range. Troy Bombardia of Sentimentrader reports that investor optimism is at the highest levels seen since February. Historically, the higher level of sentiment corresponds to points where the market experiences a stall or small correction. The Bloomberg Fear/Greed Indicator is also at an all-time high.3

Source: Bespoke Investment Group, The Bespoke Report, 7/17/20


There are numerous historical studies showing that lower interest rates and lower corporate taxes favor small company stocks. However, small company stocks also experience higher volatility during market corrections. Given the decline in stocks from March, we are not surprised to see the small-company Russell 2000 Index lagging other stock indexes. Given the uncertainty surrounding the current economic recession and its impact on corporate earnings, the Russell 2000 remains in a concerning pattern with most stocks below their 200-day moving average.4

Source: Bespoke Investment Group, The Bespoke Report, 7/17/20

The NASDAQ Index pulled back last week for the first time in many weeks. Some analysts believe that companies that have held up better during the economic shutdowns are more prevalent in the NASDAQ Index. Others believe that the U.S. economy at very low interest rates favors service businesses with high growth rates. Regardless, the earnings expectations for NASDAQ-listed companies have risen dramatically in the last month.5 The increased expectations have given investors reason to pause their purchases. The NASDAQ still shows better than 80% of companies trading above their 200-day moving average.

Source: Sentimentrader.com, “A Tale of Two Markets”, Troy Bombardia, 7/17/20

Our market indicators continue to show weakness in European stocks despite recent economic reports showing signs of improvement.   The European stock index, the Stoxx 600, appears similar to the Russell 2000, trading below its 200-day moving average. The Stoxx 600 is down much more in 2020 (-8.7%) than the S&P 500 but the two indexes share some things in common as well. Both indexes have a tremendous spread between the best performers and the rest of the index. The concentration of top stocks is heavier in the U.S. markets where the top six stocks represent nearly 25% of the index. The top seven companies represent only 9% of the Stoxx 600 Index in Europe.6

Source: Bespoke Investment Group, The Bespoke Report, 7/17/20


“Sell in May and go away” is a well-known axiom in the stock market. The summer months are commonly weaker for market activity and performance. The period between late July and late September is especially slow by historical standards. The 1-month period starting July 20th shows an average return of -1.25% over the last ten years. The following 3 months has an average return of -0.43%.7 Bespoke Investment Group shared a chart reflecting similar results for the last forty years. According to the research, the period following this is not much better showing that markets do not traditionally move significantly higher until the end of the fourth quarter.

Source: Bespoke Investment Group, Chart of the Day, 7/20/20


Interest rates were largely unchanged last week as investors await signs of 2nd quarter economic growth. Mortgage rates continue to incentivize home purchases and refinancing. Inflation remains benign despite the surge in monetary stimulus. Investors have bid up the price of gold in anticipation of eventual inflation due to increases in money supply. Analysts suggest caution for investor views on inflation as the amount of global monetary stimulus pails in comparison to the amount of capital destruction due to economic shutdowns. There is reason for concern over rising future interest rates as long-term rates will normally rise with economic growth prospects. The Atlanta Federal Reserve Bank produces a “running estimate of real GPD growth” called GDPNow, which is reflecting a bottoming of economic declines in the second quarter.8

Source: J.P. Morgan Asset Management, Weekly Market Recap, 7/20/20


When measuring the “value” of a currency, most think of a traditional yardstick such as gold.  However, economists sometimes also look at more readily and widely available commodities for their studies.  The Economist just released the latest version of its Big Mac Index, which tracks the cost of a McDonald’s Big Mac around the world.  In this year’s Big Mac Index, you’ll find that the Swiss are paying the Swiss Franc equivalent of $6.91 for a Big Mac, making it the most “expensive” Big Mac on the planet.  But Big Mac fans everywhere might be glad to know that to know you can still get a Big Mac for less than two bucks…in South Africa.  There, you’ll pay just the Rand equivalent of $1.86!

Chart by chrtr.co, data from The Economist

If you would like to schedule time to discuss our process in greater detail, please call our office at (281)616-5935 or send an email to cameron.malott@engravewealth.com. We are continually grateful for the confidence you have placed in our team. We look forward to serving your family in the years to come!


Engrave Wealth Partners Investment Committee

Bill Day, CFP®, CIMA

Taylor Parker, CFP®

Greg Parker


  1. P. Morgan Asset Management, Weekly Market Update, 7/20/20
  2. Bespoke Investment Group, The Bespoke Report, 7/17/20
  3. sentimentrader.com, 7/17/20
  4. Bespoke Investment Group, The Bespoke Report, 7/17/20
  5. Bespoke Investment Group, The Bespoke Report, 7/17/20
  6. Bespoke Investment Group, The Bespoke Report, 7/17/20
  7. Bespoke Investment Group, The Bespoke Report, 7/17/20
  8. Federal Reserve Bank of Atlanta, frbatlanta.org, 7/17/20