For the week ending June 19th, 2020.

• The U.S. stock markets did not erase last week’s losses, but did turn in some very healthy positive numbers for investors

• NASDAQ led the way with a gain of 3.7%, followed by the smaller-cap Russell 2000’s gain of 2.2%, the 1.9% return for the S&P 500 and the 1.0% move for the DJIA

• Most of the 11 S&P 500 sectors ended the week in positive territory, as only 3 were negative with the Utilities sector losing 2.4% and the Energy and Real Estate sectors each losing less than 1%

• Health Care led the other 8 sectors with a 3.1% return on the week, followed by Information Technology (up 2.8%) and Consumer Staples (up 2.4%)

• The markets started the week lower, but on Tuesday the Commerce Department delivered a jolt of great news when it was announced that Retail Sales leapt 17.7% in May, far exceeding expectations

• Initial jobless claims for the week remained uncomfortably high at 1.5 million

• WTI crude futures jumped 10% on the week and ended just shy of $40/barrel

• The 2-year Treasury yield increased to 0.19% and the 10-year yield ended the week where it started

• The U.S. Dollar Index gained 0.4%

 

Weekly Market Update – June 19, 2020

 

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Retail Sales Push Markets Higher

Stock markets reversed course from last week and pushed toward higher ground, mostly on the heels of far better-than-expected economic data, especially data that showed retail sales jumped significantly higher than anyone anticipated.

 

The markets also reacted well to news that the White House is working on a new infrastructure plan that could be worth as much as $1 trillion and the Fed’s promise that it would buy more corporate bonds.

 

In addition, while initial jobless claims came in at a very uncomfortable 1.5 million, a silver lining was that it did represent 11 straight weeks of improvement.

 

The markets were somewhat tempered by news reports of increases in new COVID-19 cases, especially in Florida, Arizona and California. Further, news that Apple will be temporarily closing some stores again caused worries of another temporary shutdown that was a dark cloud hanging over markets for most of the week.

 

Retail Sales Stun the “Experts”

On Tuesday, the U.S. Commerce Department reported that U.S. retail sales surged a whopping 17.7% in May, as consumers returned to shopping and spending. Wall Street was especially cheerful knowing that consumer spending accounts for close to 70% of GDP.

The data from the Commerce Department was stunning since economists surveyed by Bloomberg only expected about an 8% increase and actual numbers were double expectations.

 

Layer on the fact that May employment numbers revealed that we added 2.5 million jobs – versus a consensus expected loss of jobs of 9 million – it’s no wonder that healthy debate exists as to whether an economic recovery will be V-shaped or U-shaped later this year.

 

Here is what the Commerce Department released:

• • Advance estimates of U.S. retail and food services sales for May 2020 increased 17.7% from the previous month, but are 6.1% below May 2019

  • Retail trade sales were up 16.8% from April 2020, but 1.4% below last year

  • Non-store retailers were up 30.8% from May 2019, while building material and garden equipment and supplies dealers were up 16.4% from last year

    While the 17.7% jump received all the headlines – and rightly so since it was the biggest retail sales gain since 1992 – consider this additional data further buried in the Commerce Department’s release:

  • Clothing and clothing-accessories stores jumped 188%;

  • Furniture and home-furnishing sales jumped 90%;

  • Stores focused on sporting goods, hobbies, musical instruments and books jumped 88%;

  • Electronics and appliance stores jumped 51%;

  • Motor vehicle sales jumped 44%; and

  • Restaurant sales jumped 29%.

     

    More Positive Data

  • The Philadelphia Fed Index for June turned positive and it went against consensus expectations as consensus predictions pegged the index at -25.0 and it came in at +27.5

  • The Conference Board's Leading Economic Index for May increased for the first time since January

  • The NAHB Housing Market Index for June increased to 58 from 37 in May

     

    Overseas Markets

  • The STOXX Europe 600 Index ended the week 3.3% higher

  • Germany’s Xetra DAX Index climbed 3.5%

  • France’s CAC 40 Index added 3.2%

  • Italy’s FTSE MIB Index advanced 4.0%

  • The UK’s FTSE 100 Index rose 2.9%

  • Japan’s Nikkei 225 Stock Average moved up 0.8%

  • China’s CSI 300 Index gained 2.4%

 

 

Sources commerce.gov; philadelphiafed.org; conference-board.org; nahb.org; dol.gov; census.gov; federalreserve.gov; standardandpoors.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; bloomberg.com

Top economic developments

• The major U.S. stock markets had a good week, driven by the larger tech-stocks but also by the Energy sector

• NASDAQ rocketed to a gain of 6%, pushing its YTD return into positive territory and further distancing it from the YTD returns of the S&P 500 and the DJIA

• The smaller-cap Russell 2000 performed very well, leaping 5.5% on the week, followed by the 3.5% gain of the S&P 500 and the 2.6% gain in the DJIA

• Most of the economic news this week leaned toward the negative, but the markets kept looking past the negative headlines as states began to selectively open back up for business

• Of the S&P 500 sectors, the Energy sector rallied a staggering 8.3%, mostly due to oil prices rebounding sharply this week

• Other sectors performing well included Information Technology (6.6%), Consumer Discretionary (4.4%) and Communication Services (3.7%)

• New jobless claims hit 3.2 million for the week ending May 2nd and the DOL reported that the unemployment rate stood at 15.5%

• The 2-year yield declined to 0.14% while the 10- year yield came to rest at 0.67%

A Snapshot of the Market – May 8, 2020

 

	Close	Week	YTD
DJIA	24,331	2.6%	-14.7%
S&P 500	2,930	3.5%	-9.3%
NASDAQ	9,121	6.0%	1.7%
Russell 2000	1,330	5.5%	-20.3%
MSCI EAFE	1,648	0.1%	-19.0%
Bond Index*	2,332.19	-0.04%	4.82%
10-Year Treasury	0.67%	0.0%	-1.3%

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results

Markets Start May with a Bang

The U.S. stock markets finished significantly higher on the first week of May, with Energy and Technology stocks pushing NASDAQ into positive territory YTD and within about 7% of its high from February. Oil recorded its first two-week gain since early February as oil companies are slashing production and there is hope that demand will rebound once states start to open back up.

Earnings season is wrapping up and most companies are reporting within the range of expectations. But the markets received more bad news from the Department of Labor, as the number of those unemployed hit historical Depression-era levels. The good news is that fully 80% of those job losses are thought to be temporary.

Vehicle Sales Collapse

Consensus expectations called for vehicle sales to collapse in April, but the drop was less than expected. The Bureau of Economic Analysis reported that April's annual rate fell to 8.6 million units from 11.4 million in March whereas consensus expectations called for April’s annual rate to fall to 7.1 million.

Here are some numbers that paint just how dire auto sales truly were in April:

• Toyota’s sales fell 55.7%

• Honda’s sales fell 54.1%

• Mazda’s sales fell 44.5%

• Hyundai's sales fell 38.7%

U.S. Services PMI Sees Record Drop

On Tuesday, IHS Markit released the Purchasing Managers’ Index (PMI) for more than 40 worldwide economies, including the U.S. Based on monthly questionnaire surveys collected from over 400 U.S. companies and covering topics like new business, employment and expectations going forward, the U.S. Services PMI is closely watched as the services sector accounts for more than 75% of U.S. GDP.

The release acknowledged that COVID-19 was responsible for a record decline in business activity and stated the following:

“The rate of contraction accelerated to the fastest on record as client demand slumped and many businesses closed temporarily. New order inflows fell significantly as customers postponed or cancelled orders amid ongoing global lockdowns. Subsequently, expectations for the year ahead sank to their most pessimistic in the series history. Uncertainty and a further reduction in confidence led to the steepest decrease in workforce numbers on record. “

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Maybe Some Positive Housing Data?

The housing market received what can be considered positive data, as purchase applications are up 6% for the week ending May 1st, which is on top of a 12% gain from the previous week.

Yes, purchase applications are down almost 20% when compared to this time last year, but to the extent that two weeks can demonstrate a trend, then the two-week trend is positive.

Jobless Claims Hit Depression Era Levels

The Department of Labor released new jobless claims of 3.2 million for the week ending May 2nd, a decrease of 677,000 from the previous week's level. Further, the DOL reported that the unemployment rate stood at 15.5%, an increase of 3.1% from the previous week.

The DOL also stated that:

• The highest insured unemployment rates were in Vermont (25.2), West Virginia (21.9), Michigan (21.7), Rhode Island (20.4), Nevada (19.9), Connecticut (18.7), Puerto Rico (17.9), Georgia (17.3), New York (17.2), and Washington (17.1)
• The largest increases in initial claims were in Washington (+56,030), Georgia (+19,562), New York (+14,229), Oregon (+12,091), and Alabama (+8,534), while the largest decreases were in California (-203,017), Florida (-73,567), Connecticut (-69,767), New Jersey (-68,173), and Pennsylvania (-66,698)

Earnings Season Wrapping Up

With 86% of companies in the S&P 500 reporting Q12020 results by Friday, research firm FactSet reported that:

• 66% of S&P 500 companies have reported a positive EPS surprise

• 58% of S&P 500 companies have reported a positive revenue surprise

• For Q2 2020, 16 S&P 500 companies have issued negative EPS guidance and 16 S&P 500 companies have issued positive EPS guidance

As we continue to monitor the factors that affect the economy and markets, we remain alert to changing conditions as we weather the storm. If you need help managing your investment assets during this crisis, please get in touch as soon as possible. 

Sources:

dol.gov; bea.gov; markiteconomics.com; mba.org; factset.com; standardandpoors.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; fidelity.com; bloomberg.com

What incredible times we are living through right now.  About six weeks ago here in the United States all seemed quiet, and the economy strong.  Of course, there are always problems but, by comparison to today, things were positive…and now that seems like a long time ago.