US equity markets, as measured by the S&P 500 index, continued to push into record territory last week, with Friday’s index close above 3,500, which equates to a 10% year-to-date total return. Likely the biggest catalyst for last week’s 3% gain was the Federal Reserve’s announcement that it is updating how it manages inflation. Federal Reserve Chair, Jerome Powell, confirmed Thursday in a press conference that the Fed will move toward an approach of “average inflation targeting”, which will permit the group to allow inflation to run “moderately” above target “for some time”. The key implication for market participants is that low and accommodative interest rate policy from the Fed will be the norm for longer than otherwise expected. The news was not so positive for fixed income investors as long-term Treasury bond prices declined.
This week, investors will be closely tracking the US labor economy when initial claims for unemployment insurance benefits and continuing jobless claims are announced Thursday, and the August employment report, which includes the unemployment rate, will be released Friday. Despite many parts of the US equity market climbing back to new highs, the US employment picture is still challenged. It may be important to see continued improvement in Thursday and Friday’s data to support equity markets at their current levels. Last week, more than 1 million people filed for initial unemployment benefits, which has occurred every week but one since late March, and more than 14 million people filed continuing claims.
Source: St. Louis Federal Reserve
Key Economic Releases This Week
Asset Class Returns
As of August 28, 2020
Prices & Interest Rates
Source: Bloomberg, US Treasury
As of August 28, 2020
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