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July 2020
National Non-Operating Observations
Easing of lockdown measures and continued reopening of the economy boosted employment numbers in June to a greater extent than economists predicted. The domestic unemployment rate dropped 2.2% to 11.1% as the economy added a record 4.8 million jobs. However, 1.3 million people filed new unemployment benefit claims the first week of July, leaving questions about true labor market progress. Many of the June payroll gains likely were due to rehiring of workers in reopening states who were furloughed or temporarily laid off. However, workers whose previous jobs have disappeared and who must look for new positions raise concerns for job recovery through the second half of 2020. Additionally, coronavirus infection rates have increased rapidly, particularly in the southern and western U.S., putting states’ reopening plans in jeopardy. The daily U.S. case rate has tripled since June 1, when Johns Hopkins University reported 18,937 new cases, compared to 59,017 new cases on July 13. The U.S. still is struggling to contain the virus, putting hard-fought economic gains at risk. States have implemented self-quarantine measures for those traveling from “hot spots,” and other countries have put various restrictions on the entry of U.S. citizens. Surprisingly, the Institute for Supply Management Manufacturing Index bounced back stronger than expected in June, with a 52.6 reading, its largest monthly increase since August 1980. The June reading is the first over 50 since COVID-19, indicating that most industries are expanding again. Consumer confidence also continues to improve, up 12.2% in June to 98.1%, but still well below the 2020 high of 132.6% in February. The Federal Reserve continues to sustain liquidity, increasing its balance sheet nearly $3 trillion since February. According to minutes of the June meeting, Federal Open Market Committee (FOMC) members agreed the central bank should provide more clarity around its benchmark interest rates. However, opinions are split with some Fed officials preferring to tie any rate hikes to an overshoot of the Fed’s 2% inflation target, while some favor tying it to the unemployment rate, and others prefer setting a specific date. Additional forward guidance may come at the July meeting, but Fed watchers expect the FOMC to take a wait-and-see approach until at least September, especially with inflation currently at 1%, well below the 2% target.
†U.S. Bureau of Economic Analysis, Q1 2020 “Revised 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

June 2020
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
Personal Consumption Expenditures, Y-o-Y
(2 bps)
(224 bps)
30yr MMD
(2 bps)
(68 bps)
30yr Treasury
+0 bps
(112 bps)
60/40 Asset Allocation*
Non-Operating Assets
Equities rose modestly in June following impressive upward momentum in April and May. The S&P 500 increased 1.84% in June, leaving the index only 4.0% lower relative to the beginning of 2020 and 5.4% higher year-over-year. The increase reflects stabilization after volatility spiked in mid-June in response to the pandemic, and the Fed’s view that near-term economic recovery remains uncertain. The Blended 60/40 Asset Allocation finished June 2.0% higher, with the MSCI World Index up 2.5% and MSCI Emerging Markets up a considerable 7.0%. The Barclays Aggregate Bond Index finished the month 0.6% higher, placing the index 6.1% higher year-to-date.
Long Term
Last Twelve Months
As of the time of publishing, equities continued to hold their ground as investors to-date have shaken off persistent pandemic fears, and as unemployment reports continue to pleasantly surprise the markets. After closing above 10,000 for the first time in June, NASDAQ continued to achieve milestones as the index established new all-time-highs above 10,600 in early July. The S&P 500 is continuing to rise back to levels seen before the coronavirus sell-off.
Although the pandemic continues to spread to new hotspots across the country, hopes of a vaccine and promising increases in payroll have buoyed investor confidence. Volatility remains relatively low compared to levels seen from late-February to mid-May, but still is elevated compared to prior years. The upward market trend was largely unaffected, even by President Donald Trump’s statement that U.S.-China relations are “severely damaged” from the pandemic and a trade agreement between the two nations is no longer a primary focus. Uncertainty remains relative to the broader economy, but equity markets have remained stable to-date.
Non-Operating Liabilities
Tax-exempt 30-year MMD rates remained stable throughout June, dropping only 2 bps from the end of May to 1.63%. 30-year Treasury rates experienced no change from May, finishing June at 1.41%. The 30-year MMD to Treasury ratio closed the month at 116%, notably higher than early 2020 levels, as investors remain liquidity sensitive. On July 13, 30-year MMD and Treasury rates had fallen to 1.53% and 1.33%, respectively. The yield gap between “AAA” and “A” grade 30-year municipal bonds was nearly 75% due to “AAA” yields being pushed down by investors’ interest in safer highly rated debt.
Municipal markets saw heavy inflows of $10.8 billion in June, more than double May’s inflows. A boost in investor confidence contributed to the influx, caused by the Fed’s Municipal Liquidity Facility policy which provided substantial liquidity to municipal markets. While long-term rates have stabilized somewhat, short-term rates have persistently dropped since February due to the Fed’s clear indication that interest rates may remain at near-zero levels through 2022. 1M LIBOR finished June at 0.16%, down 2 bps from May 2020 and 2.24% year-over-year. The tax-exempt short-term rate SIFMA ended June down 1 bps below May at 0.13%.
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets—as approximated here by the “30-year U.S. Treasury” and “30-year 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 investment 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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