Economic Update 6-01-2020
- On a shortened holiday week, economic data continued its lackluster trend, now reporting the well-known weakness of April and May in many industries. Included were weaker numbers for durable goods, jobless claims, and pending home sales. Consumer sentiment and housing prices were mixed.
- Global equity markets gained with optimism over lockdowns easing and a slow return to normalized activity. Foreign stocks outperformed U.S., helped by a weaker dollar. Bonds gained upon lower interest rates, and tighter credit spreads. Commodities gained along with hopes for economic recovery, led by higher crude oil prices—which have come a long way in recent weeks.
U.S. stocks rose in unison with continued easing of extreme lockdowns across the U.S., moving the S&P 500 over the 3,000 level once again—only down -5% on a year-to-date basis at this point. By sector, cyclical/‘value’ stocks in the financials, industrials, and materials groups rallied well over 5% each, as did real estate and utilities, while energy and communications lagged with minimal gains.
This positivity seemed to override less favorable geopolitical news in the background. The strain in the relationship between the U.S. and China has been re-intensifying, triggered by Covid, but a crackdown on autonomy by the Chinese in Hong Kong has also caused reaction from other nations. By the end of the week, it appeared that Phase 1 of the U.S.-China agreement wasn’t in jeopardy, which pleased markets. The protests in dozens of cities (including internationally), following the death of George Floyd in Minneapolis, did not appear to affect market sentiment last week; however, the intensification to civil unrest and property damage over the weekend occurred after markets closed for the weekend. While such events have not tended to play a major role in the broader economy, especially when already beaten up by the Covid shutdowns, the indirect political ramifications remain an open question.
Partially or largely due to a battle between the President and Twitter, for fact-checking notices placed on the administration’s tweets, there have been threats of legal protections being removed from social media companies. Social media firms have generally been protected from legal claims, due to their status as content platforms or facilitators, as opposed to creators of their own content.
Foreign stocks gained to an even greater degree than domestic, with the same tailwinds of optimism of reopenings and further government economic stimulus. In Europe, this was the release of additional details and rationale for the €750 billion plan (representing nearly 5% of EU GDP), and would represent the first instance of fiscal flows moving between member nations—considered key by many in solidifying the integration of the union, but also long resisted by others opposed to ‘bailouts’. As in the U.S., the severity of the Covid-related shutdowns have made some policies far more viable than they would have been previously. Equity results in local terms were similar to those in the U.S., but a weaker dollar pushed returns a bit higher. Japanese and European stocks led the way, surpassing the U.K. and emerging markets. Commodity- and cyclically-sensitive stocks fared best, including Brazil, Australia, and Indonesia.
U.S. bonds fared well as interest rates ticked lower across the yield curve, despite ‘risk-on’ behavior last week. Credit fared slightly better than government, with high yield and floating rate bank loans leading the way. The U.S. dollar fell by over a percent, pushing flat returns for foreign bonds into positive territory for both developed markets, and even more so for emerging.
Commodities rose across the board last week, with increasing numbers of economies reopening prompting optimism in everything from energy, to industrial metals and agriculture. The price of crude oil rose by nearly 7% to over $35/barrel, as markets continued to follow the optimism of risk assets generally to a possible light at the end of the Covid tunnel. Perhaps unthinkable as recently as a few weeks ago when oil was being given away for ‘free’ essentially, spot prices recovered by 60% in May alone.
| Period ending 5/29/2020 | 1 Week (%) | YTD (%) |
| DJIA | 3.85 | -10.06 |
| S&P 500 | 3.04 | -4.97 |
| Russell 2000 | 2.87 | -15.95 |
| MSCI-EAFE | 5.10 | -14.26 |
| MSCI-EM | 2.77 | -16.53 |
| BBgBarc U.S. Aggregate | 0.23 | 5.47 |
| U.S. Treasury Yields | 3 Mo. | 2 Yr. | 5 Yr. | 10 Yr. | 30 Yr. |
| 12/31/2019 | 1.55 | 1.58 | 1.69 | 1.92 | 2.39 |
| 5/22/2020 | 0.12 | 0.17 | 0.34 | 0.66 | 1.37 |
| 5/29/2020 | 0.14 | 0.16 | 0.30 | 0.65 | 1.41 |
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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