Another week, another risk-on rally. US stocks continued to be a leader this week in global markets. SPDR S&P 500 (SPY) surged 3.3% at the close of the trading week (Aug. 28), marking the fund’s fifth straight weekly advance. Bonds, however, hit a rough patch. Vanguard Total US Bond Market (BND) fell 0.6% this week – the second weekly loss in the past three.

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Fire Sale Risk and Expected Stock Returns
George O. Aragon (Arizona State U.) and Min S. Kim (Michigan State U.)
July 29, 2020
We measure a stock’s exposure to fire sale risk through its ownership links to equity mutual funds that experience outflows during periods of systematic outflows from the fund industry. We find that more exposed stocks earn higher average returns: a portfolio that buys (shorts) stocks with the highest (lowest) exposure outperforms by 3-7% per annum. Our findings cannot be explained by several known determinants of average returns and are consistent with the ex-ante pricing of the risk of future fire sales. We conclude that stocks’ exposures to risks inherited from the constraints of shareholders have important implications for stock prices.

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Putin warns protesters in Belarus that Russia may intervene: NYT
Japan’s Prime Minister Abe resigns due to health issues: Reuters
Fed’s new inflation policy is greeted with skepticism by some analysts: BBG
Key moments from Trump’s speech on accepting Republican nomination: CNBC
US consumer spending likely increased in today’s upcoming July report: WSJ
Pending homes sales in US rise for third straight month in July: Reuters
Eurozone’s economic sentiment improves for third month in August: Reuters
German consumer morale slips, raising questions about recovery trend: Reuters
KC Fed Mfg Index up moderately in August, improves over June and July: KCF
US Q2 GDP loss revised up slightly to still-deep annualized 31.7% loss: MW
US jobless claims increased 1-million plus for a second week: CNBC

If it’s broke, fix it. The Federal Reserve is expected to embrace that rule when Jerome Powell, chairman of the central bank, speaks later today and outlines a new plan on inflation targeting.

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Hurricane Laura pounds coasts of Texas and Louisiana: USAT
US and Russian military vehicles collide in Syria, injuring US troops: BBC
Turkey to hold military drills in contested area of eastern Mediterranean: Reuters
Another currency crisis stalks Turkey’s economy: NYT
Fed expected to change policy to fight low inflation: CNBC
Fed’s inflation hawk isn’t opposed to letting inflation rise above 2% target: BBG
US durable goods orders continued to rebound at a strong rate in July: MW

There’s nothing subtle about the span of year-to-date returns for a broad set of US equity risk factors. At the extreme, the spread between the strongest and weakest performances is a stunning 40 percentage points, based on a set of exchange traded funds through yesterday’s close (Aug. 25).

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Violent demonstrations in Kenosha, Wisconsin continue for third night: CNN
Hurricane Laura begins to pound Louisiana and Texas coasts: CBS
China says US spy plane disrupted its military exercises: CNN
Economic decoupling of US and China unlikely, says former IMF official: CNBC
Two Hong Kong opposition lawmakers arrested over anti-gov’t protests: BBC
Will proposed cuts in airline workers force an extension of US stimulus? NYT
The Fed may hold its target interest rate at or near zero for years: BBG
World trade rebounded in June with “strong catch-up growth of 7.6%” vs. May: CPB
US home prices rose 4.3% in June vs. year-ago level: CNBC
New home sales in US surged in July, reaching highest level since 2006: MW
Richmond Fed Mfg Index continues to strengthen in August: RF
US Consumer Confidence Index slips to 6-year low in August: MW

One of the core tasks at The ETF Portfolio Strategist is keeping an eye on trending behavior — particularly for the component funds in our benchmark and proprietary strategy portfolios. Here’s a brief look at several of those ETFs, based on prices through today’s close (Aug. 25):

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Yes, according to the 3-month average of the Chicago Fed National Activity Index (CFNAI-MA3), which rebounded sharply in July. But the usual routine of business-cycle analysis has been unusually volatile since the coronavirus hammered the economy and so there’s reason to remain cautious on issuing an all-clear signal.
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Republicans open convention with dark warnings about Democrats: BBG
Fauci, top US virus expert, warns against rushing out a vaccine: BBC
Tropical storm becoming hurricane as it heads to Louisiana: CNN
China’s recovery has momentum, closing gap with US economy: WSJ
Worst of economic hit from coronavirus may be over, says economist: CNBC
Global dividends fall to lowest level in more than a decade: MW
Exxon Mobil removed from Dow Jones Industrials in reshuffling of index: BBG
Business sentiment in Germany improved more than expected in August: Reuters
Revised GDP for Germany shows a slightly softer 9.7% Q2 decline: Reuters
Chicago Fed Nat’l Activity Index (3mo avg) signals end of recession in July: ChiFed