Economic Update 6-22-2020
- Economic data continued to rebound last week from the troughs of commercial activity during lockdowns. Strength was pronounced in retail sales and industrial production, as well as carryover into the index of leading economic indicators.
- U.S. and foreign equity markets gained as economic results continued to improve along with business reopenings. Bonds were little changed, although corporates rallied from additional Fed intervention. Commodities were led by a sharp rise in crude oil prices back toward more normal levels.
U.S. stocks began the week strongly, with hopes for additional government fiscal stimulus (including the resuscitation of a possible $1 tril. infrastructure bil.), further Federal Reserve intervention into corporate bond markets, and a large study showing that a common steroid therapy has been effective in treating advanced-stage Covid patients. This was tempered a bit by new Covid cases in Beijing, as well as steady increases in several U.S. states—both those that had generally reopened (like FL), as well as those still more restricted (like CA). Broadly, evidence of a bottoming and reversal upward in economic growth appeared to outweigh a growing Covid caseload, described by some as a ‘second wave’.
Foreign stocks, in standard fashion as of late, tracked U.S. equities as global sentiment continued to be closely tied to broad trends over Covid-related economic reopenings. In emerging markets, Chinese stocks were sharply higher as a resumption of economic activity outweighed signs of a new outbreak in Beijing. Commodity- and generally export-oriented nations fared best last week, which was unsurprising in keeping with broader tendencies in recent weeks. The Bank of England kept rates near zero, not moving into negative territory, but widened its bond-buying program, although there seems to be more concern overseas about eventual inflation impact than we have in the U.S.
U.S. government bonds were little changed, while investment-grade and high yield corporates each gained nearly a percent along with strength in risk assets. It was announced early last week that the Fed would purchase not only corporate bond ETF’s but now corporate bonds directly, via a pre-determined ‘basket’ of bonds. With spreads having tightened sharply from wides in March, and firms taking advantage of it through far higher debt issuance, the need for this stepped up government activity is being debated. Foreign developed markets were little changed in local terms, but lost ground due to a stronger dollar. Emerging market debt gained along with risk assets, although this was tempered a bit due to the same dollar effect.
Commodities gained broadly, with a continued recovery in risk assets and a weaker dollar. Energy led the way with sharp gains, while metals provided minimal gains and agriculture lost ground slightly. The price of crude oil rose by nearly 10% to a shade below $40/barrel, with hints of stronger demand growth as the world slowly reopens and that production cuts between Russia and Saudi Arabia appear to be sticking.
|Period ending 6/19/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.20||5.92|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
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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