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Stocks extended the previous week's gains, while the Nasdaq set another record on better-than-expected economic data and improved trends in U.S. coronavirus cases. Business activity for the services sectors expanded, and the U.S. economy added 1.76 million jobs in July, beating estimates. The continuing, yet moderating, gains in employment show that the recovery in the labor market and the economy is on track, but there is still a long road ahead.
As seen in restaurants and retail stores across the country, change is hard to come by. In fact, the U.S. is experiencing a coin shortage -- just another effect of the coronavirus pandemic that has reduced the number of coins in circulation due to dampened consumer spending and limited supply. Coins are not the only form of U.S. currency currently under pressure. Though the U.S. dollar rallied a bit last week from the two-year low reached in late-July, the economic downturn, higher levels of government spending, and near-zero interest rates are likely to continue to push the dollar lower relative to a basket of global currencies.
A path of the U.S. dollar has a mixed effect on the economy. A weak dollar makes imported goods from other countries more expensive for U.S. consumers, but it also makes domestic exports more competitive abroad, which boosts profits for multinational U.S. firms. With the U.S. dollar being the world's primary reserve currency, investors pay close attention to it because its path is a key driver of returns across financial markets, from stocks and bonds to commodities and precious metals. Trends in the U.S. dollar also impact interest rates and inflation, shaping what investors can expect from asset returns in the future. Below we make sense of current trends in the dollar prompted by the unprecedented coronavirus and the impact of government stimulus measures aimed at reversing the worse economic downturn since the Great Depression.
Nela Richardson, PhD
Sources: 1. Bureau of Labor and Statistics 2. FactSet
|Dow Jones Industrial Average||27,433||3.8%||-3.9%|
|S&P 500 Index||3,351||2.5%||3.7%|
|10-yr Treasury Yield||0.56%||0.0%||-1.4%|
Source: Morningstar, 08/07/2020. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
The Week Ahead
The second-quarter earnings season will start to wind down with less than 3% of companies in the S&P 500 reporting results. Economic data being released in the U.S. include inflation on Wednesday and retail sales along with consumer sentiment on Friday.
The Weekly Market Update is published every Friday, after market close.
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