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Weekly Update

The stock market rally rolled on this past week as another move higher for the tech heavyweights lifted the S&P 500 to clinch a new all-time high. Robust growth in housing sales also provided a boost to investor optimism, despite weekly initial jobless claims ticking back above one million. For the week, the S&P 500, which notched its longest weekly winning streak of 2020 with four straight weeks of gains, returned 0.7% while the tech-heavy Nasdaq Composite gained 2.7%. The Dow Jones, which was unchanged last week, will undergo a notable shake-up by the end of this month in which it will add Salesforce.com (CRM), Amgen (AMGN), and Honeywell (HON) to the 30-member index in place of Exxon Mobil (XOM), Pfizer (PFE), and Raytheon (RTX), respectively. The move was triggered by Apple’s (AAPL) 4-for-1 stock split, which would notably cut the index’s tech weighting, and also will help to reduce overlap between companies of similar scope and add new types of business that better reflect the U.S. economy, according to S&P Dow Jones. 

Housing has been a bright spot for the U.S. economic recovery as ultra-low interest rates have led to a wave of home buying demand. Existing home sales in July surged 24.7% over June (or 8.7% over the same period last year) to a seasonally adjusted annual pace of 5.86 million, which is the highest rate since December of 2006.

Despite the health of the housing market, there are concerns of moderating improvement in the recovering jobs market as fiscal support has started to taper off. Former Fed Chairs Janet Yellen and Ben Bernanke have recently urged Congress to continue toward a compromise on the next relief bill to avoid a lapse in fiscal support as occurred in 2011 in the wake of Global Financial Crisis. With much of the market’s recent strength being attributed to the tremendous stimulus both from U.S. federal government and the Federal Reserve, developments in fiscal and monetary policy continue to garner a lot of attention from market participants. 
 
Amid that backdrop, current Fed Chair Jerome Powell will take center stage in the week ahead with his speech at the annual Economic Symposium at Jackson Hole, where he is expected to deliver important details on the Fed’s monetary policy framework. The Fed is expected to continue to provide an outlook for easy monetary conditions and liquidity support as needed, but any announcements to the contrary would have negative implications for the market rally. Additionally, trade talks between the U.S. and China have also resumed with trade officials from each nation reaffirming their commitment to follow through on the phase one trade deal, despite rising tensions between the two on other fronts. 
 

 

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