This Week's Market Moves | May 26, 2020
U.S. stock prices finished the week higher due to optimism about the re-opening of the economy and some encouraging early test results for a potential coronavirus vaccine. Below are some additional insights on the factors that drove the markets last week.
Stocks finished the week modestly higher, with the major indices climbing more than 3.0%. Optimism over the re-opening of the U.S. economy, positive news on a potential coronavirus vaccine, and Chairman Powell’s insistence that the Fed has unlimited firepower to prevent the economy from spiraling into another depression supported equity prices this week.
Trade tensions between the U.S. and China plagued the world economy last year. While trade has taken a back seat during the pandemic, tensions between the U.S. and China are flaring up again. The rift has deepened as many feel China did not do enough to prevent the pandemic from spreading. This week, the Senate passed a bill that could cause Chinese companies to be banned from U.S. stock exchanges and sanctions are being considered as China looks to curtail Hong Kong’s independence.
The U.K. sold a 3-year government bond with a negative yield for the first time this week. A negative yield means investors are willing to lend money to the government (or a corporation) knowing that they will get back less than what they paid for it, assuming the investment is held to maturity. While Germany, Japan and other European nations have had negative interest rates for some time now, this is the first time U.K. rates have dipped below zero.
Despite a record recovery in equity prices since late March, interest rates have remained near historic lows. Since early April, the 10-year U.S. Treasury yield has not moved outside of its tight trading range between 0.57% and 0.77%. Given the magnitude of the crisis and collapse of the U.S. economy, it is highly likely that rates will remain low for the foreseeable future. While low rates are supportive for longer-term growth prospects, they are devastating for conservative investors, particularly those approaching retirement.
The World Health Organization reports there are over one hundred coronavirus vaccines in development across the globe right now. Since the start of the pandemic, dozens of companies have been working around the clock to develop antiviral drug treatments and an effective vaccine. Delivering a solution to the market quickly would clearly help speed up the recovery, as the world tepidly begins to re-open their economies. While some drugs have shown promising early test results, top scientists still say it could take over a year before an effective treatment is found and deemed safe enough for mass distribution.
Businesses around the world continue to ease restrictions and move into the initial phases of re-opening. While Americans are eager to get back to normal, local governments are moving at different speeds, so it seems clear that a return to the pre-pandemic normal is still a long way off. Concerns about a second wave remain one of the biggest impediments to fully returning to normal.
Oil prices have steadily moved higher since the historic crash last month. After plunging below zero, oil prices have climbed back to over $30 a barrel in recent trading sessions, for a weekly gain of over 13%. As states relax their lockdown measures, the demand for gasoline has increased. This coupled with the decline in global oil production are contributing to the sharp rebound in the last few weeks.
It is unimaginable, but over 38 million Americans have filed for unemployment benefits since the pandemic started shuttering businesses nine weeks ago. Continuing claims, or those who are currently receiving benefits, also climbed to a record 25 million this week. This equates to a mind-boggling unemployment rate of over 17.0%. While the stock market continues to shrug off the news, there are increasing concerns that many of the jobs lost are not coming back.
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 Blend: Russell 2000
*Note: Foreign Equities and Emerging Markets YTD returns are through 5/25
Should you have additional questions, please contact your Cammack Retirement Group consultant or firstname.lastname@example.org.
Note that this article was published on May 26, 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.
Investment products available through Cammack LaRhette Brokerage, Inc.
Investment advisory services available through Cammack LaRhette Advisors, LLC.
Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291