This Week's Market Moves | June 22, 2020

Stock prices delivered modest gains this week, with the S&P 500 index rebounding 1.9%. A stronger-than-expected retail sales report, along with hopes for additional stimulus, helped stocks erase some of last week’s sharp losses. Here are some other insights on the market and the economy from this week:

Stock prices pushed marginally higher this week, with the S&P 500 index up 1.9%. The gains were powered by some encouraging economic news, increased calls for additional stimulus, and optimism on the Phase One trade deal. Concerns about coronavirus hot spots and a possible second wave have not derailed the market’s extraordinary recovery from the late March lows; the market’s gains appear to be consolidating.

Risk assets soared after the Federal Reserve (Fed) announced that it will start buying eligible individual corporate bonds, in addition to the corporate exchange-traded funds (ETFs) they are already purchasing. This new twist on its corporate bond program has the Fed involved in nearly every risk sector of the bond market, with the exception of the high-yield market. What’s next? Equities?

The 30-year fixed-rate mortgage fell to a historic low of 3.13% this week, according to a recent Freddie Mac market survey. This is the fourth time that a new all-time low has been reached this year. Sharply lower mortgage rates have seen a wave of refinancing activity and applications for new home purchases in recent weeks.

Fed Chair Powell delivered his semi-annual testimony to Congress this week, largely reiterating his downbeat assessment of the economy to lawmakers. While there have been tentative signs that the worst of the economic collapse may be behind us, the Central Bank chief warned of significant uncertainty about the timing and strength of the recovery. Reading between the lines, Powell is gently encouraging Congress to provide additional fiscal support to ensure the economy remains on a path to a sustainable recovery.

1.5 million workers applied for unemployment benefits this week, a gradual improvement since the worst of the pandemic-related layoffs. Those currently receiving benefits remained unchanged at 20.5 million. While the data suggests that the job market may be stabilizing, there are reasons to remain cautious about a swift rebound to pre-pandemic levels. The stable level of continuing claims suggests that the employers bringing furloughed employees back to work are being offset by new rounds of layoffs.

Retail sales rose for the first time in three months, a sign that the economy is on the mend as states ease stay-at-home restrictions. Hard hit areas, such as apparel and furniture sales, saw sharper-than-expected increases, as consumers showed their willingness to spend as stores reopen. While this is encouraging news, retail sales remain significantly below where they were one year ago.

The VIX volatility index, otherwise known as the fear gauge, has still not returned to normal levels after its spike in mid-March. Since the beginning of June, the VIX has slowly climbed from 25 to a recent high of near 40, before settling back in the low- to mid-30’s. With geopolitical instability increasing, Beijing cancelling flights and schools amid new coronavirus outbreaks, a rising number of cases in the U.S. and uncertainty around the re-opening of the U.S. economy, it is surprising that the VIX has not popped up even more.

The number of loans in relief programs continues to grow according to TransUnion, one of the largest credit monitoring agencies. The agency is reporting a substantial number of consumers in hardship programs across a wide variety of accounts, including auto loans, credit cards, mortgages, retail credit cards and student loans. A similar trend has been reported by the Mortgage Bankers Association (MBA). While this news is not surprising given that the CARES Act included provisions for borrowers to temporarily defer their payments, these reports underscore the financial devastation the pandemic has caused millions of Americans.

The devastating impact of the coronavirus caused bank profits to plunge nearly 70% in the first quarter. With unemployment skyrocketing and more Americans falling behind on their credit card payments, auto-loans and mortgages, banks aggressively wrote off delinquent debt and set aside billions of dollars to guard against further losses. Of note, the Federal Deposit Insurance Company's (FDIC) latest data showed a slight increase in the number of “problem banks” it monitors.

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

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Note that this article was published on June 22, 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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