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August 2020
National Non-Operating Observations
Despite the rising number of COVID-19 cases, employment numbers improved in July as the economy continued to reopen. The domestic unemployment rate fell to 10.2%, down 4.5% from April, as the economy added 1.8 million jobs following record performance in June. However, doubts remain about the health of domestic employment as approximately 1.4 million individuals filed for unemployment the last week of July. With weekly unemployment benefits under the CARES Act ending July 31, many had hoped that Congress would extend its support and alleviate states’ financial distress. While Congress has yet to reach a resolution, the White House issued an executive order that could extend unemployment benefits, albeit reduced from prior levels. Uncertainties remain around whether the proposed extension would be achievable, as the executive order requires individual states to contribute 25% of total benefits.
COVID-19 infections continued to rise rapidly in July as states proceeded with reopening efforts. Hotspots throughout the southern and western U.S.—most notably Texas and Florida—struggled to effectively curb rising infections, further fueling concerns about reopening without a vaccine. Self-quarantine measures remain in many states, placing restrictions on individuals traveling to and from identified coronavirus hotspots. As of early August, the U.S. had recorded a staggering 5 million cases, accounting for approximately a quarter of all reported cases globally.
Additionally, the U.S. Bureau of Economic Analysis released the GDP estimate of 32.9% contraction, narrowly beating economists’ forecast of 34.7% contraction. This estimate reflects the worst quarterly performance in recorded history. The dramatic plunge was due in large part to a struggling service sector, which continues to suffer from social distancing measures and suppressed demand compared to other sectors. By contrast, the ISM Manufacturing Index improved to 54.2, reflecting a strong expansion in the manufacturing sector. Still, consumer confidence of 92.6% remains notably lower than levels in recent history, as economic uncertainty plagues domestic operations.
Despite the grim economic outlook, equities continued to rise in July and early August as investors retained hopes for a vaccine and congressional approval of further stimulus funding. These hopes—combined with liquidity from the Federal Reserve and surprisingly strong earnings performance from financial institutions and the tech sector—fueled investors’ bullish sentiments even as President Trump repeatedly conveyed messaging that could further deteriorate U.S.-China relations. The White House strengthened its rhetoric around Chinese technology companies being a source of national security risks in an August executive order. This measure reflects the ongoing hostile undertone between the two nations and follows President Trump’s statement in July that the relationship between the two countries is severely damaged and a potential next phase of a trade deal is no longer a U.S. priority.
†U.S. Bureau of Economic Analysis, Q2 2020 “Advance Estimate” *60/40 Asset Allocation assumes 30% S&P 500 Index, 20% MSCI World Index, 10% MSCI Emerging Markets Index, 40% Barclays US Aggregate Bond Index

July 2020
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
Personal Consumption Expenditures, Y-o-Y
(1 bps)
(207 bps)
30yr MMD
(26 bps)
(87 bps)
30yr Treasury
(22 bps)
(133 bps)
60/40 Asset Allocation*
Non-Operating Assets
Equities continued their recovery in July as surging tech stocks drove the S&P 500 toward all-time highs and erased year-to-date losses. As of July 31, the 10 largest companies (including Apple, Facebook, Amazon, Microsoft, and Alphabet) comprised nearly 29% of the S&P 500—the largest share in data going back 40 years. With the S&P 500 up 5.5% and the MSCI World and MSCI Emerging Markets indices up 4.7% and 8.4% respectively, the Blended 60/40 Asset Allocations finished July up 4.0% as the Barclays Aggregate Index ended the month up 1.5%. The excellent performance in July saw the 60/40 portfolio return to positive territory for the first time in 2020, ending the month up 3.2% since the start of the year. Although equities have recovered from the sell-off in March, some bearish market experts fear the heavy concentration in such a small group of big names poses a threat to the entire market, with striking similarities to the late 1990s’ tech bubble.
Long Term
Last Twelve Months
At the time of publishing, equities continued to build on their July momentum as the S&P 500 was 13 points away from its February 19 closing record of 3,386. The Nasdaq hit a series of record finishes in early August, propelling it above the 11,000 milestone for the first time. Equity and bond markets remained seemingly unaffected by continuing U.S.-China tensions and rising COVID-19 death rates in some parts of the country. With corporate earnings season not as bleak as forecasted and a recent return of healthcare M&A deals—including the $16 billion sale of Varian Medical System to Siemens Healthineers—bullish market experts see prospects for further gains in 2020 as pandemic control measures continue to be lifted.
Non-Operating Liabilities
Tax-exempt rates continued their steady decline toward historic lows in July, with 30-year MMD ending the month at 1.28%, down 26 bps from June. Treasury rates also headed toward historic lows as 30-year Treasury rates fell 22 bps to end the month at 1.19%. At the time of publishing, 10-year Treasury rates were at 0.56% and had only been lower 0.1% of the time since 2000, while 30-year Treasury rates had only been lower 0.3% of the time over the same period. After starting the year at 87%, the 30-year MMD to Treasury ratio continues to normalize, ending July at 114%, markedly lower than the 177% ratio seen at the end of April.
After the massive exodus of investors from municipal bond funds in March and April, money continued to return to the municipal market. July saw $9.9 billion of inflows, putting fund flows $1.7 billion into the black in 2020 after $45.3 billion of outflows in March and April. Short-term rates continued to fall as 1M LIBOR finished July at 0.15% and SIFMA ended the month down 3 bps at 0.16%. With benchmark rates and credit spreads remaining favorable based on supportive fund flows and manageable supply, the forward calendar appears to be building with borrowers looking to access the markets ahead of the unpredictable November election.
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets, as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index,” are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply and demand sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investments and principal and interest payments on existing and maturing holdings. Strong fund flows signal generally that investors have more cash to put to work, a boon to demand. Fund inflows generally are moderate and consistent over time, while fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in quick position liquidation which can drive yields up considerably in a short time.
©2020 Kaufman, Hall & Associates, LLC
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