This Week's Market Moves | May 4, 2020
While the S&P 500 had its best monthly performance since 1987, stock prices ended the week on a sour note, as the reality of the economic landscape started to set in. Here are some other highlights for the week:
Stock gains faded towards the end of the week on renewed fears of a U.S. – China trade war. While the S&P 500 posted its best monthly performance since 1987, climbing 12.9% in April, stocks were not able to hold onto their gains on the first trading day in May. Recent gains have been driven by massive stimulus initiatives, news of a possible coronavirus treatment, and speculation that the economic damage will be short-lived. However, recent economic data and earnings reports may be calling the quick recovery view into question.
Demand for safe-haven Treasuries remains strong, despite the rebound in risk assets in recent weeks. 10-year Treasury yields held steady during the week, as bond investors remain concerned about a prolonged economic downturn due to the coronavirus pandemic. However, on a year-to-date basis, the 10-year Treasury yield fell over 125 basis points to 0.61%. It will be interesting to see if yields resume their downtrend next week, as the trade war appears to be ramping up again.
Two big tech giants, Apple and Amazon, reported their earnings this week. Both companies are closely watched, as they are among the biggest constituents in the S&P 500 index and have been among the top performers since the March 23rd low. Apple withheld its forward guidance, a similar trend this earnings season, and Amazon announced that its second quarter profits will be spent on its coronavirus response.
The outperformance of small-cap stocks in April has caught the market’s attention. While mega-cap stocks have long dominated market performance, with a handful of stocks leading the way, leadership has shifted towards small caps in recent weeks. While one month does not make a sustainable trend, the recent leadership change is notable because small caps typically lead large caps in the early stages of a new bull market.
The Federal Reserve left the near-zero interest rates unchanged at their policy meeting this week. While the decision was widely expected, Fed Chairman Powell delivered some somber remarks on the economy during the post-meeting press conference, cautioning that the ongoing health crisis poses considerable risks to the economic outlook over the medium term. While market pundits are currently expecting a swift return to normalcy, the Fed appears to be less optimistic.
The market received its first look at the damage the coronavirus shutdowns have done to the U.S. economy. The advanced estimate of 1st quarter growth this week showed the economy contracted at a 4.8% rate, the steepest downturn in activity since the Great Recession. With the economic damage expected to deepen in the 2nd quarter, March will likely mark the start of the recession.
Another 3.8 million Americans filed for unemployment benefits this week. The good news is that the pace of filings has slowed in recent weeks. The bad news is that over 30 million Americans have filed for unemployment benefits over the last six weeks, which represents over 15% of the entire U.S. labor force. Continuing claims, which report unemployed workers that qualify for benefits, also reached a record high of 18 million in the latest release.
Many Americans who lost jobs due to the coronavirus pandemic may now be making more money on unemployment than they did before they were laid off. With some states preparing to re-open, employers are finding themselves in a tricky position of having to compete with the generous unemployment benefits offered to their furloughed employees. Without staff, businesses will find it harder to re-open. On the other hand, workers who chose to stay home risk losing their unemployment benefits.
Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Blend S&P 500 Index, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: DJ US Select REIT, Small Cap: Russell 2000
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Note that this article was published on May 4, 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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