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September 2020
National Non-Operating Observations
Continued economic recovery was seen throughout August, though at a slower rate compared to previous months. 1.4 million jobs were added for the month, compared to 1.7 million in July and 4.8 million June. While all sectors have exhibited recovery, construction and manufacturing job gains have slowed, with only 16,000 and 29,000 jobs added back in August out of 425,000 and 720,000 jobs still missing, respectively. In total, 11 million jobs—more than half of the jobs lost since the beginning of the pandemic—remain absent from the economy, and concerns about termination of unemployment benefits have not been alleviated. Negotiations in Congress have failed to provide real hope for a solution.
On a positive note, unemployment fell from 10.2% in July to 8.4% in August. To support job recovery, the Fed announced a major policy change in late August, signaling that job growth will be the predominant concern, and the central bank will no longer preemptively raise rates to combat expected inflation. Again, the Fed emphasized that interest rates will remain at very low levels for the foreseeable future, and that economic recovery will be slow and “measured in years.”
The U.S. Bureau of Economic Analysis revised the initial estimate of Q2 GDP contraction from 32.9% to 31.7%, the worst recorded performance in history. Contributing factors include widespread job loss centralized in the leisure and hospitality sectors, and sharp reductions in retail and service activity. Consumer spending has increased in recent months but still is threatened by fears of a “double-dip” recession, continued social distancing practices, and the recent cessation of CARES Act unemployment relief funds. These fears, coupled with the sustained rate of coronavirus infections, contributed to a decrease in the Consumer Confidence Index from 91.7% in July to 84.8% in August. On the production side of the economy, the ISM Manufacturing Index rose from 41.5% in April to 56.0% in August, signaling a strong reversal into expansionary territory.
Despite falling consumer confidence, equities continued to rise in August, with the S&P 500 reaching an all-time high. Investor sentiments were buoyed by a promising jobs report, the Fed’s indication that interest rates would remain low to support job growth, and progress in development of the AstraZeneca coronavirus vaccine. The trial vaccine entered Phase III trials in late June, which are expected to verify the vaccine’s effectiveness by the end of 2020. At time of writing in mid-September, Phase III trials were paused worldwide, only recently resuming in the U.K. Oxford University, the initial developer, has received $1.2 billion in funds from the U.S. government, a small piece of the $10.8 billion invested in vaccine development through Operation Warp Speed. In other good news, the U.S. and China resumed trade discussions on August 24, alleviating some fears that future deals were permanently damaged by hostilities in July. Despite the generally positive news throughout August, the first half of September saw equities fall across the board due to tech sector selloffs, sparked in part by Congress’ repeated failures to pass a second relief package.
†U.S. Bureau of Economic Analysis, Q2 2020 “Second 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

August 2020
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
Personal Consumption Expenditures, Y-o-Y
1 bp
(193 bps)
30yr MMD
19 bps
(28 bps)
30yr Treasury
28 bps
(49 bps)
60/40 Asset Allocation*
Non-Operating Assets
Indications that major economies around the world are on a path toward recovery, combined with fiscal and monetary stimulus, helped fuel a global equities rally in August. The MSCI World Index rose 6.5%, experiencing its best August since the 1980s. Aggressive worldwide central bank policies have put sharp pressure on bond yields, making high-grade bonds less appealing and pushing investors toward equities and riskier, less-liquid fixed income. A better-than-expected corporate earnings season has added to a more optimistic outlook. The MSCI Emerging Markets Index rose 2.1% in August and the Barclays Aggregate Index dropped 0.8%, but remains up 6.9% since the start of the year.
Long Term
Last Twelve Months
U.S. equities had a strong August as well, seeing the S&P 500 rise 7%, up 8.3% since the beginning of 2020. However, September has been a different story. Historically a difficult month for stocks, uncertainty surrounding the election as well as the continued COVID-19 aid bill impasse in Congress has seen equities drop substantially during the first half of the month. After reaching all-time highs in early September, the much-anticipated pullback happened, resulting in two consecutive weeks of losses. Tech stocks—which had been powering markets toward record highs—dropped drastically as Apple shares fell 10.6% since the beginning of the month. However, a slew of deals and promising coronavirus vaccine news have boosted market sentiment. Nvidia announced the acquisition of Arm Holdings from SoftBank for $40 billion and Oracle won the sweepstakes to run ByteDance’s U.S. TikTok operations. Additionally, AstraZeneca resumed Phase III trials following a halt due to safety concerns, bolstering vaccine hopes and rallying markets.
Non-Operating Liabilities
Tax-exempt 30-year MMD rates rose from historic lows seen in July to 1.56% in August, up 19 bps. Similarly, 30-year Treasury rates rebounded from historic lows in July to 1.47% in August, up 28 bps. Long-term rates nudged higher as investors took comfort in improved economic figures and progress toward a coronavirus vaccine. In the short-term markets, 1M LIBOR returned to June’s level of 0.16%, after dropping to 0.15% in July. SIFMA fell from 0.16% to 0.09% in August. Municipal fund flows have continued their positive trend since the massive outflows seen in March and April. $10.8 billion entered municipal funds in August, with an additional $1.7 billion of inflows at time of writing in mid-September.
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 generally signal 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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