June 1, 2020
U.S. Markets: U.S. stocks recorded a second consecutive week of solid positive returns, with slower-growing value stocks again gaining ground ahead of more highly valued growth shares. At its peak this week, the S&P 500 got within 10% of its all-time high, pulling it out of “correction” territory. Similarly, the technology-heavy NASDAQ 100 Index climbed within almost 3% of its February peak before retreating. The Dow Jones Industrial Average rose over 900 points to close at 25,383, a gain of 3.8%, while the Nasdaq Composite added 1.8%. The large cap S&P 500 gained 3.0%, while the mid cap S&P 400 and small cap Russell 2000 gained 4.0% and 2.8%, respectively for the week.
Commodities: Gold rose 0.9% to close at $1751.70 per ounce, while Silver rallied a fourth consecutive week to close at $18.50 per ounce—a gain of 4.6%. Oil rose 6.7% to $35.49 per barrel of West Texas Intermediate crude. The industrial metal copper, viewed by some as a barometer of world economic health due to its wide variety of uses, rose a second consecutive week up 1.6%.
May Summary: All major U.S. indices rose in May. The Dow rose 4.3% and the NASDAQ 100 gained 6.8%. The S&P 500 gained 4.5%, the mid cap S&P 400 rose 7.1%, and the small cap Russell 2000 added 6.4%. Almost all major international markets were also higher for the month of May. Canada’s TSX gained 2.8%, while the FTSE 100 rose 3.0%. France’s CAC 40 and Germany’s DAX rose 2.7% and 6.7%, respectively. China’s Shanghai Composite finished down -0.3%, while Japan’s Nikkei rallied 8.3%. Developed markets rose 5.3% and emerging markets gained 3.0%. Although gold was no slouch, rallying 3.4% in May, it was outshone by far by Silver, which surged 23.6%. Oil set a record for the largest ever gain in a single month, rallying 88.4%. Copper finished the month up 3.7%.
U.S. Economic News: The number of Americans applying for initial jobless benefits continued to recede last week, falling by 323,000 to a still-huge 2.123 million. Economists had estimated 2 million Americans would file. Over the past ten weeks, more than 40 million workers have filed for unemployment benefits as a result of the unprecedented coronavirus-driven shutdown of the economy. Continuing claims, which counts the number of Americans already receiving benefits, fell 3.860 million to 21.052 million—its first decline in 11 weeks.
The pace of home-price appreciation continued to rise in March despite the spread of the coronavirus according to a major home price barometer. The S&P CoreLogic Case-Shiller 20-city home price index posted a 3.9% year-over-year gain in March—a 0.4% increase from the previous month. On a monthly basis, the index increased 0.5% between February and March. Because of the two-month lag in the data for the index, the effects of the coronavirus pandemic on the housing market were not yet fully reflected in the data. Home prices have managed to thus far shrug off most of the economic impact of the coronavirus pandemic. Robert Kavcic, senior economist at BMO Capital Markets stated in a research note, “While March was still early days, it’s looking likely that the initial impact will be felt mostly on plunging sales and listings volumes, not prices.”
Sales of new homes ticked up 0.6% from March to April, to a seasonally-adjusted annual rate of 623,000 the government reported. Compared with the previous year, however, new home sales were down 6.2%. The reading was far higher than analysts’ expectations of just 480,000 new homes sold. However, because of the small sample size used to produce the new‑home sales report, it is prone to often significant revisions. By region, the Northeast experienced the largest increase with an 8.7% uptick, while new home sales rose 2.4% in the both the Midwest and the South. Sales fell 6.3% in the West. The median price of a new home sold was $309,900—down 8.5% from the same time last year. Furthermore, there was a 6.3 months’ supply of available homes on the market. Six months of inventory is generally considered a “balanced” housing market.
The Conference Board reported that the confidence of American consumers stabilized in May after sharp drops in March and April. The board’s Consumer Confidence Index ticked up 0.9 points in May to 86.6. Economists had expected a 4.6 point decline to 82.3. This initial sign of stabilization is particularly important as strengthening confidence should translate into a pickup in consumer spending, necessary for any reacceleration of broad economic growth. Consumers’ assessment of the present situation remained dire, with that indicator falling 1.9 points to 71.1—its lowest level since August 2013. However, consumer expectations for the near future surprisingly rose 2.6 points to 96.9, a three-month high.
Orders for goods expected to last at least 3 years, so-called “durable goods”, plunged -17.2% in April. Economists had forecast a decline of -18.2%. A key measure of business investment which strips out defense and transportation categories fell a lesser -5.8%. Orders for durable goods have declined three out of the last four months. CIBC economists Andrew Grantham and Katherine Judge in a note, “While the decline in durable goods orders in April wasn’t quite as bad as expected, the opening up of capacity in the industrial sector and continued struggles in the aviation industry will likely mean the rebound in the second half of the year in business investment lags behind other areas of the economy.”
The Chicago Federal Reserve reported that economic activity across the nation fell sharply in April. The Chicago Fed’s National Activity Index registered a -16.74 in April, a record low. The index’s less-volatile three month moving average declined to a -7.22 from -1.69, also a record low for the three-month measure. The regional bank noted there is an increasing likelihood of a recession when the three-month moving average falls below -0.7. The National Activity index is a weighted average of 85 economic indicators. A zero value indicates that the economy is expanding at its historic trend rate of growth. In April’s reading, 79 of the 85 individual indicators made negative contributions, while only 6 were positive.
The Federal Reserve’s latest “Beige Book”—a collection of anecdotal reports from each of the Federal Reserve’s district banks about economic conditions in their respective areas, showed economic activity falling sharply and steep job losses nationwide. Some sectors, like leisure and hospitality, continued to be hit hardest by the stay-at-home orders, while factory activity and agriculture also continued to deteriorate. One bright spot was an upturn in auto sales towards the middle of May. Thomas Simons, money market economist at Jefferies stated, “The bottom line is that the U.S. economy is quite far from being out of the woods yet. If there is anything to be gleaned about policy, it is that more needs to be done on the fiscal and monetary front, or perhaps both, before a meaningful recovery can take hold.”
Finally: Sweden pursued its own distinct path in confronting the coronavirus pandemic. By choosing to keep its economy open, rather than instituting a policy of lockdown, it is the only major nation expected to report a positive gross domestic product reading for the first quarter. Epidemiologist Anders Tegnell, the architect behind Sweden’s policy, has repeatedly doubled down on the merits of his country's approach. Sweden, he said, is playing the long game despite the country currently experiencing a much higher death rate than its neighbors. “In the autumn, there will be a second wave. Sweden will have a high level of immunity and the number of cases will probably be quite low,” Tegnell said in an interview. “But [neighboring] Finland will have a very low level of immunity. Will Finland have to go into a complete lockdown again?” Critics, such as infectious disease expert Stefan Hanson, noted that Sweden’s mortality per million is as much as five times higher than all the other Nordic countries, though still lower than numerous other countries. What can be said unequivocally is that the disaster predicted by many to befall Sweden because of its relaxed response to the pandemic has simply not occurred…at least not yet. The chart below shows the actual number of covid-19 deaths (red then black line) vs the projected number (dotted line) and the worst-case number (shaded area). (Chart by Yinon Weiss from Institute for Health Metrics and Evaluation (IHME) data)
(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)
There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. One cannot invest directly in an index. Past Performance does not guarantee future results.
Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The S&P/TSX composite index is the Canadian equivalent to the S&P 500 market index in the United States. The S&P/TSX composite index represents about 70% of the total market capitalization on the Toronto Stock Exchange (TSX).
The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.
The Nikkei 225 is a stock market index is for the Tokyo Stock Exchange (TSE). It is the most widely quotedÚverage of Japanese equities.
May 26, 2020
U.S. Markets: Stocks rose for the week with the benchmark S&P 500 index hitting its highest level since March 6 before falling back somewhat. Small and mid-cap stocks saw their strongest gains as they attempted to catch up to their larger cap brethren. The Dow Jones Industrial Average rose 3.3% to close at 24,465. The technology-heavy NASDAQ Composite, likewise, added 3.4%. The large cap S&P 500 added 3.2%, while the mid cap S&P 400 and small cap Russell 2000 were way out front, surging 7.4% and 7.8% respectively.
U.S. Economic News: The number of Americans filing first time claims for unemployment insurance fell by 249,000 to 2.438 million last week. The number was in line with the consensus of 2.4 million new claims. New filings are well off their peak from late March, but remain in the millions as businesses continue to shed workers. Gradual reopening of state economies should bring about fewer initial jobless claims in the coming weeks and months. Continuing claims, which counts the number of Americans already receiving benefits, increased by 2.525 million to 25.073 million. That number is reported with a one-week delay.
Sales of previously-owned homes plunged -17.8% in April to a 4.33 million unit annual rate—the lowest level since July of 2010. The reading was the biggest drop in almost ten years, but better than economists’ forecasts of a -19.5% decline. Both single-family and multi-family sales fell significantly, with multi-family posting a record decline. Sales were down in all four regions of the country, led by the West. “Months of available supply” ticked up to 4.1 months from 3.4, but still remained below the 6 months generally considered to indicate a “balanced” housing market. Partly as a result of this, the median existing home price was up 7.4% from the same time last year.
Confidence among the nation’s homebuilders bounced back from its historic decline last month as the industry grew more optimistic about post-pandemic home sales. The National Association of Home Builders (NAHB) reported its monthly confidence index for May rose 7 points to 37. April’s reading had been the index’s lowest reading since June of 2012. In the details of the report, the index that measures current sales conditions increased 6 points to 42, while the index that gauges sales expectations in the next six months jumped 10 points to 46. By region, the West posted the largest increase, rising 12 points, followed by the Midwest and the South. Builder confidence in the Northeast, which includes the particularly hard-hit New York state, dropped two points. NAHB Chairman Dean Mon said in the report, “The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey.”
The Commerce Department reported housing starts plunged 30% in April to a seasonally-adjusted annual rate of 891,000. It was the slowest pace of new home construction since February 2015. The reading missed economists’ forecasts for an annual rate of 900,000. Permit activity for newly-built homes fell 20.8% between March and April to a seasonally-adjusted annual rate of 1.07 million. That number, however, exceeded forecasts of a reading of 996,000.
Manufacturing activity in the Philadelphia area remains depressed but did show improvement, according to the latest data from the Philadelphia Federal Reserve. The Philly Fed’s General Business Activity Index rose 13.5 points to -43.1 this month—worse than the consensus of -40.0. Although off its record low the previous month, the index remains deep in contraction territory. Shipments, new orders, and employment continued to decline, albeit at somewhat slower rates. Furthermore, delivery times shortened and unfilled orders shrank which suggest weaker demand. On a positive note, manufacturers’ optimism about the next six months increased. The Future Activity index rose 6.7 points to 49.7, its highest level since December of 2017.
Federal Reserve Chairman Jerome Powell delivered a message to Congress this week with a simple theme: Do everything you can. All of us are affected, but the burdens are falling most heavily “on those least able to carry them,” Powell said. A recent Fed study indicated that almost 40% of the households making less than $40,000 a year lost a job during the first month of the pandemic. Powell has implied several times in recent remarks that Congress has to do more to support the economy. Washington has already passed almost $3 trillion in aid, but Democrats and Republicans are divided over the next step. Powell isn’t expected to back specific spending proposals and get drawn into the political fray, yet the chairman has become known for promoting policies that aim to help the most disadvantaged and distressed communities.
In the minutes from April’s Federal Open Market Committee meeting, Federal Reserve officials discussed how best to clarify its intentions regarding interest rates. The Fed said it expects to maintain the federal-funds rate at the present range of 0% to 0.25% “until it is confident the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Several officials said the Fed might need to provide clarity over the central bank’s ongoing unlimited purchase of Treasuries and mortgage-backed securities. The Fed has said these purchases were started and continue to facilitate the normal functioning of the financial markets. Without more communication, some officials said uncertainty might set in. Overall, Fed officials said they would use “the full range” of their tools to support the economy through the challenging pandemic.
Finally: As the economy begins to reopen from the coronavirus lockdown economists have predicted just about every scenario possible, from a 1930’s-style long-running economic depression to an immediate recovery and a quick bounce back to new highs. Since the United States economy is predominantly consumer-driven, perhaps some insight can be gleaned from consumer spending plans covering the next 6 months. Uh-oh - only 3 categories of spending are seen as increasing: “Groceries”, “Beer/Wine/Alcohol” and “Candy”. Every single one of the other 18 categories show reduced spending plans. Not the sort of plans from which robust recoveries are made, unfortunately.
Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)
There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
One cannot invest directly in an index. Past Performance does not guarantee future results.
In the ever-changing landscape of finance we must ensure our clients are properly invested based upon their investment goals and objectives.
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