This Week's Market Moves: May 18, 2020
Stocks ended the week with modest losses as Fed Chairman Powell warned about the possibility of an extended period of sluggish growth and significant downside risks to the economy in the aftermath of the COVID-19 pandemic. Here is more of what is driving markets this week:
Concerns about a second wave of coronavirus outbreaks, rising tensions between the U.S. and China, and Fed Chairman Powell’s warning about a prolonged recession caused the stock recovery to stall this week. The S&P 500 posted modest losses, ending the week down over 2.0%. However, talks of another stimulus package is looming on the horizon.
The stock market’s recovery from the depths of the decline in late March has been nothing short of spectacular, particularly given the gains occurred amidst the worst economic downturn since the Great Depression. While investor optimism drove stocks substantially off their lows as the Fed stepped in with scale and size to support the financial markets, the longer-term fallout from the growth and employment downturn is just getting started.
The Fed, with the help of BlackRock, began purchasing eligible investment-grade and some high-yield corporate exchange traded funds (ETFs) this week. This history-making initiative remains a key part of the Fed’s emergency coronavirus lending program announced in late March, which was designed to restore confidence and support smooth market functioning amid panicky markets. Meanwhile, liquidity and credit-market stress have markedly improved, as investors eagerly made purchases in anticipation of the program’s launch.
More than 200 companies have cut or cancelled their dividends this year, as they struggle to preserve cash during the coronavirus shutdowns. This is the fastest pace of dividend cuts or suspensions since the 2008 financial crisis. Some notable companies that have made changes this year are Disney, Ford, Boeing, Macy’s and General Motors. While investors may be understanding in the current market environment, the loss of income, at a time when it is needed most, is still troubling.
U.S. consumer prices fell sharply in April, as demand for gasoline, travel, clothing and other goods and services plummeted during the government mandated stay-at-home orders. The monthly decline in the core measure, which excludes food and energy prices, was also the largest in the history of the series which dates to 1957. While supply chain disruptions and more people eating at home led to sharply higher food prices during the month, it was not enough to offset the widespread declines in the other components of the index.
Over 36 million Americans have filed for unemployment benefits over the last eight weeks. Continuing claims, which report those currently receiving benefits, increased to nearly 23 million. The gap between the initial jobless claims and continuing claims highlights how many unemployed people are not yet receiving benefits. While the numbers remain at unprecedented levels, the weekly claim filings have been on a decelerating trend since peaking at the end of March.
The March retail spending data was catastrophically bad, but the April data was even worse. The latest report showed spending plunged 16.4% from the previous month. These spending patterns mimicked the March report, which showed increased spending on essential items such as food and beverages and steep declines in gas, autos, electronics and clothing purchases. This does not bode well for U.S. growth, as the economy is very dependent on the health of the consumer.
The coronavirus crisis has forced millions of Americans to work from home. It seems the experiment has been so successful that many businesses are starting to re-think the way they will operate once the pandemic lockdowns are lifted. While it is too early to tell how this will play out, if businesses do decide to reduce their physical footprint, it will have major implications for commercial property and the interdependent industries connected to it.
Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Cap: Russell 2000
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Note that this article was published on May 18, 2020. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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