What I’m Watching This Week – 13 July 2020

The Markets (as of market close July 10, 2020)

Last Monday proved to be a good start to the week for equities as each of the benchmark indexes listed here posted solid gains. The Nasdaq reached a record high as surging tech stocks drove that index up 2.2% for its fifth consecutive gain. The Dow finished the day up nearly 1.8%, and the S&P 500 climbed 1.6%.

Last Tuesday saw the end of a five-day winning streak as stocks slid, despite reports from the White House and Senate promoting a new round of stimulus. An increase in COVID-19 outbreaks seemed to dim investor hopes for a quick economic recovery. Sectors taking a particular hit were industrials, energy, and financials. The small caps of the Russell 2000 lost nearly 2.0%, the Dow fell 1.5%, the S&P 500 dropped 1.1%, and the Nasdaq dipped 0.9%.

Equities rebounded last Wednesday as Apple and Amazon sent the Nasdaq to another record high. Gold shot past $1,800 per ounce, crude oil closed at nearly $41.0 per barrel, and Treasury yields dipped.

Last Thursday saw stocks fall on fears that the rising number of COVID-19 cases will undercut the economy. The Dow dropped 1.4%, the small caps of the Russell 2000 fell 2.0%, the Global Dow gave back 0.8%, and the S&P 500 lost 0.6%. Industrials, energy, and financials were market sectors hit particularly hard. Only the Nasdaq closed higher, gaining 0.5% as tech stocks held their own. Crude oil prices plunged 2.6%. Treasury yields fell as bond prices surged.

Stocks climbed higher last Friday following the release of promising clinical results for COVID-19 treatment by Gilead Science. Finance, banks, energy, communications, and industrials performed well on the day. Each of the indexes listed here enjoyed solid daily gains, led by the Russell 2000, which closed last Friday up 1.7%.

Despite its strong showing last Friday, the Russell 2000 ended last week as the only index in the red. The Nasdaq led the way, gaining 4.0%, followed by the S&P 500, the Global Dow, and the Dow. Investors seem to be clinging to any positive news to offset the record number of reported virus cases and ongoing discord with China, particularly as it relates to that country’s dealings with Hong Kong.

Crude oil prices rallied late last week, closing at $40.49 per barrel by late Friday afternoon, up from the prior week’s price of $40.32. The price of gold (COMEX) advanced for the fourth consecutive week, closing at $1,801.40, up from the prior week’s price of $1,787.60. The national average retail regular gasoline price was $2.177 per gallon on July 6, $0.003 higher than the prior week’s price but $0.566 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 7/10 Weekly Change YTD Change
DJIA 28,538.44 25,827.36 26,075.30 0.96% -8.63%
Nasdaq 8,972.60 10,207.63 10,617.44 4.01% 18.33%
S&P 500 3,230.78 3,130.01 3,185.04 1.76% -1.42%
Russell 2000 1,668.47 1,431.86 1,422.68 -0.64% -14.73%
Global Dow 3,251.24 2,862.16 2,891.45 1.02% -11.07%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.66% 0.63% -3 bps -128 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • Producer prices reversed course in June, dropping 0.2% after climbing 0.4% the previous month. For the last 12 months, producer prices are down 0.8%. In June, a 1.8% decline in margins for trade services (trade indexes measure changes in margins received by wholesalers and retailers) was the primary drag on producer prices. Prices for goods rose 0.2% in June.
  • According to the latest Job Openings and Labor Turnover report, the number of hires increased by 2.4 million to 6.5 million in May — the largest monthly increase of hires since the series began. Separations decreased by 5.8 million to 4.1 million, also a series high. These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the COVID-19 pandemic and efforts to contain it. Over the 12 months ended in May, hires totaled 68.5 million and separations totaled 79.8 million, yielding a net employment loss of 11.3 million.
  • Economic activity in the services sector surged in June following two consecutive monthly retractions. According to the latest Non-Manufacturing ISM® Report On Business®, the non-manufacturing index climbed 11.7 percentage points, the largest single-month percentage point increase in the history of the index. Business activity, new orders, prices, and employment each advanced in June following May’s dismal performance. The notable increase in the services sector is indicative of businesses starting to reopen last month.
  • For the week ended July 4, there were 1,314,000 claims for unemployment insurance, a decrease of 99,000 from the previous week’s level, which was revised down by 14,000. According to the Department of Labor, the advance rate for insured unemployment claims was 12.4% for the week ended June 27, a decrease of 0.5 percentage point from the prior week’s revised rate. The advance number of those receiving unemployment insurance benefits during the week ended June 27 was 18,062,000, a decrease of 698,000 from the prior week’s level, which was revised down by 530,000.

Eye on the Week Ahead

This week the Consumer Price Index is likely to show some upward price pressure in June. Also, industrial production is expected to climb in June as more businesses reopened.

What I’m Watching This Week – 6 July 2020

The Markets (as of market close July 3, 2020)

Domestic stocks surged last Monday, as a robust pending home sales report overshadowed an increase in COVID-19 cases. Pending sales of existing homes soared over 44% in May, a record-setting rate that should lead to gains in existing homes sales in June and July. A jump in Boeing Co. stock helped propel the S&P 500, which virtually wiped out its June losses. The small caps of the Russell 2000 climbed more than 3.0%, followed by the Dow, the S&P 500, the Nasdaq, and the Global Dow. Crude oil prices gained nearly 3.0% while bond yields were unchanged.

Equities closed what proved to be a volatile June on a high note. The Dow ended Tuesday up 0.9%, the S&P 500 gained 1.5%, and the Global Dow rose 0.8%. But the big winners were the Russell 2000, up 1.4%, and the Nasdaq, which climbed 1.9%. Investors pushed stocks higher despite sobering news related to the ongoing battle against COVID-19. Top government health adviser, Dr. Anthony Fauci cautioned that a COVID-19 vaccine remains uncertain. Also, Federal Reserve Chairman Jerome Powell, during testimony before the House Committee on Financial Services, stated that while economic data is showing some positive signs, economic growth remains extraordinarily uncertain and will depend in large part on success in containing the virus.

Wednesday produced a mixed bag for stocks. The Nasdaq, Global Dow, and S&P 500 posted gains, while the Dow and Russell 2000 lost value. Crude oil prices advanced, while Treasuries and the dollar fell. Early in the day stocks climbed on news that preliminary tests of a COVID-19 vaccine developed by Pfizer and BioNTech were favorable. However, the stock gains were short-lived following reports that both California and Arizona had their biggest daily increases in virus cases.

June’s employment figures far surpassed expectations with more than 4.8 million new jobs added, giving investors another sign that the economy is picking up steam. Heading into the Fourth of July weekend, the major markets were closed last Friday in observance of the holiday. Nevertheless, each of the benchmark indexes listed here enjoyed solid weekly returns. The Nasdaq, once again, led the way, gaining over 4.6%, followed by the S&P 500, which closed up by more than 4.0%. Treasury yields remained steady, while crude oil prices gained and the dollar fell slightly.

Crude oil prices rebounded last week, closing at $40.32 per barrel by late Thursday afternoon, up from the prior week’s price of $38.10. The price of gold (COMEX) advanced for the third consecutive week, closing at $1,787.60 by late Thursday afternoon, up from the prior week’s price of $1,784.10. The national average retail regular gasoline price was $2.174 per gallon on June 29, $0.045 higher than the prior week’s price but $0.539 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 7/2 Weekly Change YTD Change
DJIA 28,538.44 25,015.55 25,827.36 3.25% -9.50%
Nasdaq 8,972.60 9,757.22 10,207.63 4.62% 13.76%
S&P 500 3,230.78 3,009.05 3,130.01 4.02% -3.12%
Russell 2000 1,668.47 1,378.78 1,431.86 3.85% -14.18%
Global Dow 3,251.24 2,775.41 2,862.16 3.13% -11.97%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.63% 0.66% 3 bps -125 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • There were 4.8 million new jobs added in June, and the unemployment rate declined by 2.2 percentage points to 11.1%. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April due to the COVID-19 pandemic and efforts to contain it. In June, employment in leisure and hospitality rose sharply. Notable job gains also occurred in retail trade, education and health services, other services, manufacturing, and professional and business services. The number of unemployed persons fell by 3.2 million to 17.8 million. Although unemployment fell in May and June, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February. The labor force participation rate increased by 0.7 percentage point in June to 61.5% but is 1.9 percentage points below its February level. The employment-population ratio, at 54.6%, rose by 1.8 percentage points over the month but is 6.5 percentage points lower than in February. In June, average hourly earnings fell by $0.35 to $29.37, reflecting job gains among lower-paid workers. The average workweek decreased by 0.2 hour to 34.5 hours in June.
  • According to the latest purchasing managers’ index from IHS Markit, manufacturing continued to retract in June, but at a much slower pace than in April and May, as companies began to reopen. New orders from customers helped push production higher last month. The manufacturing sector saw employment decline for the fourth consecutive month in June, however, the overall loss of jobs was considerably weaker than those seen in the prior two months.
  • The news was more positive from the Institute for Supply Management® as it reported that manufacturing actually grew in June. According to the Manufacturing ISM® Report On Business®, the June purchasing managers’ index registered 52.6%, up 9.5 percentage points from the May reading. This figure indicates expansion in the overall economy for the second straight month after April’s contraction. New orders increased dramatically, climbing nearly 25 percentage points from May. Production and employment also expanded notably in June.
  • The international trade in goods and services report for May, out July 2, shows the trade deficit was $54.6 billion, up $4.8 billion, or 9.7%, from April. In May, exports fell 4.4% and imports slid 0.9%. Year to date, the goods, and services deficit decreased $22.3 billion, or 9.1%, from the same period in 2019. Of particular note, the trade deficit with China increased $1.9 billion to $27.9 billion in May. Exports to China increased $0.7 billion to $10.0 billion, and imports from China increased $2.7 billion to $37.9 billion.
  • For the week ended June 27, there were 1,427,000 claims for unemployment insurance, a decrease of 55,000 from the previous week’s level, which was revised up by 2,000. According to the Department of Labor, the advance rate for insured unemployment claims was 13.2% for the week ended June 20, unchanged from the prior week’s revised rate. The advance number of those receiving unemployment insurance benefits during the week ended June 20 was 19,290,000, an increase of 59,000 from the prior week’s level, which was revised down by 291,000.

Eye on the Week Ahead

The end of the week offers a glimpse at inflationary trends with the latest information on producer prices. Also, this week is the June Treasury budget report. Government spending has been up and income has been down, primarily due to the pandemic.

Quarterly Market Review: April – June 2020

The Markets (second quarter through June 30, 2020)

Stocks rebounded from a dismal March by posting their best monthly returns since 1987, as investors were encouraged by the expectation of additional government stimulus programs and hope that the economy would be reopening soon. The Paycheck Protection Program and Health Care Enhancement Act replenished the Paycheck Protection Program, providing funding for additional small business loans, and offered financial support to hospitals, while increasing the availability of more virus testing. The Federal Reserve added trillions of dollars in funds to its lending programs. Crude oil prices rose nearly 30.0% despite collapsing into negative territory on April 20. A few states began easing lockdown restrictions and reopening a range of businesses. While there were plenty of ups and downs in the market during the month, April closed with each of the benchmark indexes listed here climbing notably higher. The Nasdaq gained 15.45%, followed by the Russell 2000, the S&P 500, the Dow, and the Global Dow.

In May, investors continued to rally to stocks as more states and foreign countries eased restrictions put in place in response to the COVID-19 pandemic. The economy continued to stagger, however. The unemployment rate reached its highest level since the Great Depression while claims for unemployment insurance pushed past 25 million. On the other hand, news of possible breakthroughs in the treatment of COVID-19 cases and the development of a vaccine for the virus provided optimism for investors. Once again, the Nasdaq led the way, advancing 6.75% by the close of May. The Russell 2000 gained 6.36%, followed by the S&P 500, the Dow, and the Global Dow.

June was a month of drastic highs and lows for stocks. For example, the Dow climbed 6.8% in the first week of the month, then fell 5.5% in the second week. However, by the close of June, each of the indexes listed here posted gains with the tech holdings of the Nasdaq leading the way, up nearly 6.0% from its May closing value.

The second quarter of 2020 notched the best quarterly performance since 1998, with each of the benchmark indexes making sizeable gains over their historically poor first-quarter tallies. However, much of the second-quarter growth in the stock market and economy is more of a bounce back from a dismal March and April, when pandemic-related lockdowns and restrictions virtually shut down the economy. Nevertheless, stocks rose as investors focused on favorable economic data and the possibility of further government stimulus, despite rising virus cases and tepid trade relations with China. Of the benchmark indexes listed here, the Nasdaq again proved the strongest, soaring more than 30.0% for the quarter, followed by the small caps of the Russell 2000, which gained 25.0%. The large caps of the S&P 500 and the Dow closed the second quarter up nearly 20.0% while the Global Dow vaulted ahead by more than 14.0%.

Year to date, the Nasdaq remains the only index well ahead of its 2019 year-end closing value. While still in the red, the S&P 500 is within 5.0 percentage points of last year’s final mark, followed by the Dow, the Global Dow, and the Russell 2000.

By the close of trading on June 30, the price of crude oil (WTI) continued to climb, closing at $39.35 per barrel, ahead of the May 29 price of $35.34 per barrel. The national average retail regular gasoline price was $2.129 per gallon on June 22, up from the May 25 selling price of $1.960 but $0.525 less than a year ago. The price of gold finished June at $1,798.80 per ounce, slightly higher than its May 29 closing value of $1,745.80 per ounce.

Stock Market Indexes

Market/Index 2019 Close As of June 30 Monthly Change Quarterly Change YTD Change
DJIA 28,538.44 25,812.88 1.69% 17.77% -9.55%
Nasdaq 8,972.60 10,058.77 5.99% 30.63% 12.11%
S&P 500 3,230.78 3,100.29 1.84% 19.95% -4.04%
Russell 2000 1,668.47 1,441.37 3.40% 25.00% -13.61%
Global Dow 3,251.24 2,821.05 2.59% 14.23% -13.23%
Fed. Funds 1.50%-1.75% 0.00%-0.25% 0 bps 0 bps -150 bps
10-year Treasuries 1.91% 0.66% 2 bps 3 bps -125 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Latest Economic Reports

  • Employment: Employment rose by a stunning 2.509 in May after falling 20.687 in April. Notable job gains occurred in leisure and hospitality, construction, education and health services, and retail trade. The unemployment rate dropped 1.4 percentage points to 13.3% for the month as the number of unemployed persons dropped by close to 2.1 million to 21.0 million. Improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the COVID-19 pandemic and efforts to contain it. While these numbers are better, put in perspective, the unemployment rate and number of unemployed persons are up 9.8 percentage points and 15.2 million, respectively, since February. In May, average hourly earnings fell by $0.29 to $29.75, primarily due to job gains among lower-paid workers. Average hourly earnings increased by 6.7% over the last 12 months ended in May. The average workweek rose by 0.5 hour to 34.7 hours in May. The labor participation rate for May was 60.8% (60.2% in April). The employment-population ratio was 52.8% last month, 1.5 percentage points ahead of April’s figure.
  • Claims for unemployment insurance reached historic levels in May, spiking to more than 25.0 million. The rate for insured unemployment claims also reached a historic high of 17.2%. Since the initial impact of the virus in mid-March, nearly 47.5 million initial claims for unemployment benefits have been filed. For the week ended June 13, the number of those receiving unemployment insurance benefits decreased to 19.522, and the rate for insured unemployment claims fell to 13.4%.
  • FOMC/interest rates: The Federal Open Market Committee held its regularly scheduled meeting in early June and unanimously voted to hold the target range for the federal funds rate at its current 0.00%-0.25%. According to the Committee, the ongoing public health crisis caused by the COVID-19 pandemic will weigh heavily on economic activity, employment, and inflation in the near term, while posing considerable risks to the economic outlook over the medium term. The FOMC expects to maintain this rate until it is confident the economy has weathered the recent events, which according to its projections, will run through the year 2022. In addition, the Fed announced that it will be increasing, at least at the current pace, holdings of Treasuries and residential and commercial mortgage-backed securities.
  • GDP/budget: According to the third and final estimate for the first-quarter gross domestic product, the economy decelerated at an annualized rate of 5.0%. Consumer spending was a big drag, falling 6.8%, reeling from the initial effects of the COVID-19 pandemic. Fixed investment fell 1.3% in the first quarter (-0.6% in the fourth quarter), and nonresidential fixed investment dropped 6.4% in the first quarter, compared to a 2.4% decline in the prior quarter. Net exports were down 9.0%, and imports sank 15.7%. Consumer prices advanced at a rate of 1.3% in the first quarter, compared to the fourth quarter (1.4%).
  • The Treasury budget deficit came in smaller than expected in May. Nevertheless, the deficit, at $398.8 billion, was nearly twice as high as the deficit for May 2019. Through the first eight months of fiscal 2020, the deficit is $1.880 trillion, nearly 91.0% greater than the deficit over the same period in fiscal 2019. So far this fiscal year, outlays are 29.4% above the 2019 figure, while receipts are 11.2% lower.
  • Inflation/consumer spending: According to the Personal Income and Outlays report for May (released June 26), personal income and disposable (after-tax) personal income fell 4.2% and 4.9%, respectively. This followed April increases of 10.8% (personal income) and 13.1% (disposable personal income). The decrease in personal income last month is largely attributable to a reduction in federal government payments from recovery programs initiated due to the pandemic. Consumers ramped up their spending in May, as personal consumption expenditures increased 8.2%, after falling 12.6% in April. Inflation remains muted as prices for consumer goods and services rose a scant 0.1% in May after falling 0.5% the previous month. For the past 12 months, consumer prices are up a mere 0.5%.
  • Deflation is trending at the consumer level. The Consumer Price Index slid 0.1% in May, marking the third consecutive monthly decrease, which hasn’t happened in the 63-year history of this index. Year to date, consumer prices are up 0.1%. Excluding food and energy, prices also fell 0.1% last month. Energy prices dropped 1.8% in May for the fifth straight monthly decline. Transportation services are down 3.6%, and airfares plunged 4.9% in May after cascading 15.2% and 12.6% in April and March, respectively. On the other hand, consumer prices for food edged up 0.7% and medical care services rose 0.6% in May.
  • Prices producers receive for goods and services rebounded from a dismal April, climbing 0.4% in May. Year to date, producer prices are down 0.8%, however. In May, energy prices climbed 4.5% after falling 19.0% in April and 6.7% in March. Food prices shot up by 6.0% last month, although trade services fell 0.8%.
  • Housing: Sales of existing homes plunged in May while sales of new single-family homes soared. Existing home sales fell 9.7% in May after falling 17.8% in April. Over the last 12 months, existing home sales are down 26.6%. Sales of existing single-family homes plunged 9.4% last month and are off 24.8% from a year ago. The median existing-home price in May was $284,600 ($286,800 in April). Unsold inventory of existing homes represents a 4.8-month supply at the current sales pace, up from 4.0 months in April. Sales of new single-family homes vaulted 16.6% in May following a slight 0.8% drop in April. The median sales price of new houses sold in May was $317,900 ($303,000 in April). The average sales price was $368,800 ($352,300 in April). May’s inventory of new single-family homes for sale represents a supply of 5.6 months at the current sales pace.
  • Manufacturing: Following April’s dismal report, industrial production increased 1.4% in May. Manufacturing, which had fallen 15.5% the prior month, pushed ahead 3.8% in May. However, total industrial production in May was 15.4% below its pre-pandemic level in February. Compared to May 2019, industrial production is down 15.3%, while manufacturing is off by 16.5% over the same 12-month period. Mining and utilities fell 6.8% and 2.3%, respectively, in May.
  • New orders for durable goods followed April’s 18.1% decline by advancing 15.8% in May. Transportation equipment drove the increase, surging ahead by 80.7% last month. However, excluding transportation, new orders increased 4.0%. For the year, new orders for durable goods have fallen 13.6%. New orders for nondefense capital goods (manufactured assets used by businesses to produce consumer goods) jumped ahead 27.1% in May, also driven primarily by a jump in transportation.
  • Imports and exports: May saw energy prices swing higher, driving import prices up 1.0% after falling 2.6% in April. Imported crude oil prices advanced 31.7% last month after dropping 36.9% in April. Excluding fuel, import prices ticked up 0.1% in May. Since May 2019, import prices have declined 6.0%. The price index for U.S. exports rose 0.5% in May following a 3.3% drop the previous month.
  • The international trade in goods deficit was $74.3 billion in May, up $3.6 billion from April. Exports of goods for May were $90.1 billion, $5.5 billion less than April exports. Imports of goods for May were $164.4 billion, $1.9 billion less than April imports.
  • The latest information on international trade in goods and services, out June 4, is for April and shows that the goods and services trade deficit increased by $7.1 billion, or 16.7%. April exports were $38.9 billion, or 20.5%, less than March exports. April imports were $31.8 billion, or 13.7%, less than March imports. Year to date, the goods, and services deficit sit at $168.5 billion, a decrease of $26.0 billion, or 13.4%, from the same period in 2019.
  • International markets: Global markets rebounded in the second quarter on the heels of fiscal stimulus, easing of restrictions, and interest rates at 0% and below. By the end of March, world stocks had lost about 35.0% from their year-end highs. By the end of June, these same markets are within 10.0% of February’s record highs. A spike in new virus cases could send world markets reeling again. While inflation remains muted in the United States, prices are slowly escalating in Europe, where longer-range forecasts see inflation rising to 1.0% — close to its highest level since early March. In Asia, the Nikkei 225 is up about 2.0% for the month, the Shanghai Composite Index has gained 2.2% for the month, and the Hang Seng Index has climbed nearly 5.0%.
  • Consumer confidence: The Conference Board Consumer Confidence Index® was little changed in May, coming in at 86.6, slightly above April’s 85.7 reading. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — decreased from 73.0 to 71.1. However, the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, improved from 94.3 in April to 96.9 last month.

Eye on the Month Ahead

While the stock market has pushed forward, indicators did not suggest the economy is on the upswing. As states ease restrictions and businesses reopen, the economy should begin the slow process of recovery. However, increases in the number of reported virus cases may prompt the imposition of restrictions, at least in some states, which could impact economic growth.

What I’m Watching This Week – 29 June 2020

The Markets (as of market close June 26, 2020)

The week began with the stock market picking up where it left off the previous week. Each of the benchmark indexes listed here advanced in value, led by the tech-heavy Nasdaq, which jumped 1.10%, pushed higher by Amazon and Adobe. Last Monday’s run marked the seventh straight advance for the Nasdaq — its longest rally of the year. The Russell 2000 gained 1.00%, followed by the S&P 500, the Dow, and the Global Dow. Crude oil reached $40 per barrel for the first time in quite a while, the dollar dropped, and the yield on 10-year Treasuries inched higher. Stock values climbed despite the accelerating number of COVID-19 cases reported.

Tuesday saw both the Nasdaq and Russell 2000 continue to surge. In fact, the Nasdaq hit an all-time high as investors seemed to focus on signs of economic growth and the expectation of more government stimulus. President Trump tweeted that the U.S.-China trade deal remains fully intact, which further encouraged investors despite U.S. health advisor Anthony Fauci’s warning of a disturbing surge in COVID-19 cases. Apple, Amazon, and Microsoft were winners at the end of the day, as were road and rail stocks, real estate, utilities, airlines, and retailers.

Stocks took a nosedive midweek as the growing number of reported COVID-19 cases was too much for investors to ignore. The pandemic is prompting fears that renewed restrictions will slow economic growth. Money poured into bonds, pushing prices higher, and driving yields lower. Among sectors taking a particularly hard hit last Wednesday were energy, financials, and industrials. Airline stocks, which had been climbing as restrictions eased, got pummeled. Each of the indexes listed here took a sizeable hit, led by the small caps of the Russell 2000, which gave back nearly 3.50%. The Dow closed down 2.72% on the day, followed by the Global Dow, the S&P 500, and the Nasdaq, which ended its run of daily gains by sinking 2.19%.

Thursday was a better day for equities as each of the benchmark indexes listed here posted gains, led by the Russell 2000, which climbed nearly 2.00%. Bank stocks enjoyed a good boost after the Federal Deposit Insurance Corporation eased limits on bank risk-taking. As stocks climbed, more bad news came from the COVID-19 front. Thursday, the number of new virus cases surpassed April’s peak, prompting the governor of Texas to pause the process of reopening. Also, new weekly claims for unemployment insurance approached 1.5 million — a figure that’s lower than the prior week, but still indicative of the number of people who have lost their jobs.

Both Texas and Florida imposed new restrictions as reported virus cases surged last Friday, sending stocks tumbling. These are the first states to reimpose restrictions, although several other states are considering added restrictions and/or delaying reopenings. The Dow fell 2.84%, the Nasdaq dropped 2.59%, and both the S&P 500 and Russell 2000 gave back more than 2.40%, respectively.

For the week, each of the benchmarks lost notable value, led by the Dow, which fell more than 3.30%. Clearly, rising COVID-19 cases throughout several parts of the country have curbed investor enthusiasm over encouraging economic news. The market swung up and down for much of the week, with bank stocks being particularly volatile. After the FDIC eased restrictions on bank investing last Thursday, the Federal Reserve indicated its plan to restrict banks’ sharing of profits through dividends and share repurchases. Of the remaining indexes listed here, the S&P 500 fell back into correction territory after dropping 2.86%. The small caps of the Russell 2000 lost nearly 3.00%, the Global Dow declined nearly 2.25%, while the Nasdaq fared the best, losing less than 2.00% for the week.

After climbing higher the week before, crude oil prices sank lower last week, closing at $38.10 per barrel by late Friday afternoon, down from the prior week’s price of $39.50. The price of gold (COMEX) advanced again last week, closing at $1,784.10 by late Friday afternoon, up from the prior week’s price of $1,755.10. The national average retail regular gasoline price was $2.129 per gallon on June 22, 2020, $0.031 higher than the prior week’s price but $0.525 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 6/26 Weekly Change YTD Change
DJIA 28,538.44 25,871.46 25,015.55 -3.31% -12.34%
Nasdaq 8,972.60 9,946.12 9,757.22 -1.90% 8.74%
S&P 500 3,230.78 3,097.74 3,009.05 -2.86% -6.86%
Russell 2000 1,668.47 1,418.64 1,378.78 -2.81% -17.36%
Global Dow 3,251.24 2,838.87 2,775.41 -2.24% -14.64%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.69% 0.63% -6 bps -128 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • The third and final estimate of the gross domestic product for the first quarter of 2020 showed the economy slowed at an annual rate of 5.0%. In the fourth quarter, the GDP increased 2.1%. A main contributor to the deceleration of the economy in the first quarter was consumer spending, which fell 6.8%, exhibiting the initial impact of the pandemic. Business investment fell 1.3%, although residential investment soared 18.2%. The personal consumption expenditures price index increased 1.3%. Excluding food and energy prices, the PCE price index increased 1.7%.
  • According to the latest report from the Bureau of Economic Analysis, consumer spending ramped up 8.2% in May following downturns in March and April, when personal consumption expenditures fell 6.6% and 12.6%, respectively. Consumer prices inched ahead 0.1% last month and are up 0.5% since May 2019. Personal income sank 4.2% last month and disposable, or after-tax, income dropped 4.9%, each figure impacted by a decrease in payments from federal economic recovery programs.
  • The international trade in goods deficit was $74.3 billion in May, up $3.6 billion from $70.7 billion in April. Exports of goods for May were $90.1 billion, $5.5 billion less than April exports. Imports of goods for May were $164.4 billion, $1.9 billion less than April imports.
  • Existing home sales fell 9.7% in May, declining for the third consecutive month. Overall, existing home sales are down 26.6% from a year ago. The median existing-home price for all housing types in May was $284,600, down from April’s $286,800 but 2.3% ahead of the May 2019 median sales price ($278,200). Total housing inventory at the end of May totaled 1.55 million units, up 6.2% from April but down 18.8% from one year ago (1.91 million). Unsold inventory has increased, sitting at a 4.8-month supply at the current sales pace, up from 4.0 months in April.
  • While existing home sales may have fallen in May, sales of new homes soared. According to the Census Bureau, sales of new single-family homes in May were 16.6% above the April total and 12.7% ahead of May 2019. The median sales price of new houses sold in May 2020 was $317,900 ($303,000 in April). The average sales price was $368,800 ($352,300 in April). The estimate of new houses for sale at the end of May was 318,000, which represents a supply of 5.6 months at the current sales rate.
  • New orders for manufactured durable goods rebounded in May, advancing 15.8% over April’s totals. Transportation equipment, primarily vehicles, and aircraft led the increase, climbing a whopping 80.7%. Excluding transportation, new orders increased 4.0% with orders for core capital goods (nondefense capital goods excluding aircraft) up 2.3%. Shipments of durable goods increased 4.4% in May following April’s 18.6% decline. New orders for nondefense capital goods in May increased 27.1%. Shipments increased 0.4%.
  • For the week ended June 20, there were 1,480,000 claims for unemployment insurance, a decrease of 60,000 from the previous week’s level, which was revised up by 32,000. According to the Department of Labor, the advance rate for insured unemployment claims decreased 0.5 percentage point to 13.4% for the week ended June 13. The advance number of those receiving unemployment insurance benefits during the week ended June 13 was 19,522,000, a decrease of 767,000 from the prior week’s level, which was revised down by 255,000.

Eye on the Week Ahead

The employment numbers for June are out this week. May’s report was unexpectedly favorable with 2.5 million new jobs added. However, weekly unemployment claims continue to remain in the millions, which could be an indication that June’s employment figures may not be as favorable as they were the previous month.

What I’m Watching This Week – 22 June 2020

The Markets (as of market close June 19, 2020)

Equities began the week edging higher following the Federal Reserve’s announcement that it would buy corporate bonds under an emergency lending program. The Russell 2000 closed up 2.3%, the Nasdaq gained 1.4%, while the S&P 500 and the Dow eked out gains of less than 1.0%, respectively. After last week’s tailspin, crude oil prices rebounded while the yield on 10-year Treasuries advanced slightly. Investors remain wary, however, as more than 20 states are seeing an uptick in reported cases of COVID-19, and new hotspots in Beijing and India are raising concerns of a resurgence of the pandemic.

Following an impressive retail sales report, stocks jumped higher last Tuesday. Led by the Global Dow (2.45%), each of the benchmark indexes listed here posted gains of at least 1.75% (Nasdaq). Also climbing were crude oil prices (2.24%), gold (0.47%), and the yield on 10-year Treasuries (7.69%). Most sectors advanced, with the best performers being energy, health care, and materials. Along with the robust retail sales report, the Trump administration announced that it is preparing a $1 trillion infrastructure proposal aimed at accelerating the economy.

The Nasdaq inched ahead on Wednesday, but that was the only benchmark to gain. The large caps of the Dow and S&P 500 fell 0.65% and 0.36%, respectively. The Russell 2000 sank 1.77%, and the Global Dow changed negligibly. The yield on 10-year Treasuries dropped 3.04% while crude oil prices decreased 1.75% to $37.71 per barrel. It appears increases in reported COVID-19 cases were enough to pull investors from stocks.

Stocks were mixed last Thursday as concerns over the escalating number of reported virus cases, coupled with another 1.5 million new claims for unemployment insurance, caused investor uneasiness. The Dow fell 0.15% while the S&P 500, the Nasdaq, and the Russell 2000 all posted marginal gains. Energy stocks helped buoy stocks following a pledge from major oil-producing countries to continue to limit output.

Friday closed what may be best described as a roller-coaster ride for stocks. The Dow fell 0.80%, the S&P 500 dropped 0.56%, the Russell 2000 lost 0.59%, and the Global Dow gave back 0.29%. Only the tech-heavy Nasdaq eked out a 0.03% gain. Earlier in the day, stocks rallied following reports out of China that it would comply with phase one of the trade deal by accelerating purchases of U.S.-exported farm goods. Nevertheless, record increases of COVID-19 reported cases in Florida and Arizona drew stocks back from earlier gains.

For the week, the ups and downs experienced by equities ended with the benchmark indexes closing ahead, led by the Nasdaq, followed by the Russell 2000, the S&P 500, the Global Dow, and the Dow. The yield on 10-year Treasuries closed the week where it began. Year to date, the Nasdaq is safely ahead of last year’s closing value, while the other benchmark indexes have yet to catch up to their respective 2019 year-end marks.

Crude oil prices are back on the upswing after major oil-producing countries agreed to continue to limit output. The week ended with oil prices hovering around $39.50 per barrel by late Friday afternoon, up from the prior week’s price of $36.41. The price of gold (COMEX) continued to climb last week, closing at $1,755.10 by late Friday afternoon, up from the prior week’s price of $1,738.40. The national average retail regular gasoline price was $2.098 per gallon on June 15, 2020, $0.062 higher than the prior week’s price but $0.572 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 6/19 Weekly Change YTD Change
DJIA 28,538.44 25,605.54 25,871.46 1.04% -9.35%
Nasdaq 8,972.60 9,588.81 9,946.12 3.73% 10.85%
S&P 500 3,230.78 3,041.31 3,097.74 1.86% -4.12%
Russell 2000 1,668.47 1,387.68 1,418.64 2.23% -14.97%
Global Dow 3,251.24 2,799.51 2,838.87 1.40% -12.68%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.69% 0.69% 0 bps -122 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • Retail sales spiked in May, advancing 17.7% from the previous month. Sales are down 6.1% from May 2019. Retail trade sales also increased, climbing 16.8% last month. Nonstore (online) retail sales increased 9.0% in May and are up 30.8% since May 2019. Last month, a tremendous spike in sales was seen by some retailers including clothing and clothing accessories stores (188.0%), motor vehicle and parts dealers (44.1%), furniture and home furnishing stores (89.7%), electronics and appliance stores (50.5%), and sporting goods, hobby, musical instrument, and book stores (88.2%).
  • New home construction should be on the rise in June as May saw building permits jump by 14.4%. Housing starts climbed 4.3% last month but housing completions fell by 7.3%, likely due to a scale-back of construction work due to the pandemic.
  • Total industrial production increased 1.4% in May as many factories resumed at least partial operations following suspensions related to the COVID-19 pandemic. Nevertheless, total industrial production remains 15.4% below its February pre-virus level and 15.3% below its May 2019 rate. Manufacturing rebounded from consecutive monthly decreases by advancing 3.8% in May, with most major industries posting increases, the largest of which coming from motor vehicles and parts. Mining and utilities fell 6.8% and 2.3%, respectively.
  • For the week ended June 13, there were 1,508,000 claims for unemployment insurance, a decrease of 58,000 from the previous week’s level, which was revised up by 24,000. According to the Department of Labor, the advance rate for insured unemployment claims was 14.1% for the week ended June 6. The advance number of those receiving unemployment insurance benefits during the week ended June 6 was 20,544,000, a decrease of 62,000 from the prior week’s level, which was revised down by 323,000.

Eye on the Week Ahead

Several important economic reports are out this week. The final estimate for the first-quarter gross domestic product is released this week. It is not expected that much will change from the prior estimate, which had the economy slow at a rate of 5.0%. May home sales figures are also available this week. Existing home sales plunged in April, while new home sales were little changed. The durable goods orders report for May is also out this week. Orders fell more than 17.0% in April. May should show some improvement.

What I’m Watching This Week – 15 June 2020

The Markets (as of market close June 12, 2020)

Last week began with a bang for stocks as each of the indexes gained well over 1.0% for the day. The S&P 500, after climbing 1.2%, has picked up nearly 45.0% since its 2020 low, pushing it into the black for the year. The Nasdaq rose to a record high while the Dow and Russell 2000 surged by close to 2.0% each. Oil prices fell marginally, and the dollar sank, as did the yield on 10-year Treasuries. Investors were encouraged by the prospects of more reopenings, the Federal Reserve’s expansion of its Main Street Lending Program, and the growing sentiment that the economy is reversing course toward expansion. Market sectors leading the way included energy, real estate, airlines, financials, travel and leisure, and retail.

Investors pulled some profits out of stocks last Tuesday, sending each of the benchmark indexes (except the Nasdaq) lower. The Dow fell 1.1%, and the S&P 500 dipped 0.8%. The tech-heavy Nasdaq edged up 0.3% and reached 10,000 for the first time in its history, only to fall back slightly by the end of trading. Oil prices rose, the yield on 10-year Treasuries dropped, and the dollar declined for the ninth straight day.

Equities fell again last Wednesday despite the Fed’s announcement that it would maintain the current target rate range at 0.00%-0.25% and continue to make asset purchases at the current pace. The Dow dropped 1.0%, the S&P 500 lost 0.5%, but the Nasdaq continued to climb, gaining 0.7%. For the first time in several sessions, FAANGs (Facebook, Apple, Amazon, Netflix, and Alphabet Google) posted gains, along with health care and tech stocks.

Stocks plunged dramatically last Thursday as investors sold stocks on news of rising COVID-19 cases coupled with the Federal Reserve’s assessment that the economy will be slow to recover. Each of the indexes listed here fell by at least 5.27%, with the Russell 2000 dropping 7.58% and the Dow plummeting 6.90%. Yields on 10-year Treasuries sank, as did crude oil prices.

Equities rallied from Thursday’s rout, but not enough to prevent an overall week of losses. Stocks posted solid returns last Friday with each of the benchmark indexes listed here posting solid daily gains, led by the Russell 2000, which climbed more than 2.25% on the day. Crude oil prices inched up, as did the yields on 10-year Treasuries.

However, the week was marked by fears of a second virus wave, which sent equities into a tailspin. While stocks rallied Friday, the major indexes lost ground for the week. The small caps of the Russell 2000 were hit the hardest, followed by the Dow, Global Dow, the S&P 500, and the Nasdaq. Year to date, only the Nasdaq remained solidly in the black, while the Russell 2000, the Global Dow, and the Dow continue to lag by more than 10.0%, respectively. Investors exercised caution in light of rising COVID-19 infection rates and an uncertain economic outlook.

For the first time in several weeks, crude oil prices fell, closing the week at $36.41 per barrel by late Friday afternoon, down from the prior week’s price of $39.16. The price of gold (COMEX) soared last week, closing at $1,738.40 by late Friday afternoon, up from the prior week’s price of $1,688.30. For the sixth week in a row, gas prices rose. The national average retail regular gasoline price was $2.036 per gallon on June 8, 2020, $0.062 higher than the prior week’s price but $0.696 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 6/12 Weekly Change YTD Change
DJIA 28,538.44 27,110.98 25,605.54 -5.55% -10.28%
Nasdaq 8,972.60 9,814.08 9,588.81 -2.30% 6.87%
S&P 500 3,230.78 3,193.93 3,041.31 -4.78% -5.86%
Russell 2000 1,668.47 1,507.15 1,387.68 -7.93% -16.83%
Global Dow 3,251.24 2,949.64 2,799.51 -5.09% -13.89%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.90% 0.69% -21 bps -122 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • Following its meeting last week, the Federal Open Market Committee left no doubt that it would use its full range of tools to support the U.S. economy. According to the Committee, the ongoing public health crisis caused by the COVID-19 pandemic will weigh heavily on economic activity, employment, and inflation in the near term, while posing considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0.00%-0.25%. The Committee expects to maintain this rate until it is confident the economy has weathered the recent events, which according to its projections, will run through the year 2022. The Committee also indicated that it would be increasing holdings of Treasuries (currently at $80 billion per month) and residential and commercial mortgage-backed securities (presently at $40 billion per month).
  • The federal deficit was $399 billion in May and sits at $1,880 billion through the first eight months of the fiscal year. Through the same period last fiscal year, the budget deficit was $739 billion. According to the Federal Reserve, the Department of Labor spent $94 billion in May, driven by expanded unemployment benefit payments. Prior to this past April, the high was $17 billion in March 2010. Also, May has been a deficit month 65 times out of 66 fiscal years, since there are no major corporate or individual tax due dates in this month.
  • The Consumer Price Index fell 0.1% in May after declining 0.8% in April. Over the last 12 months, the CPI has increased 0.1%. Price reductions in energy, motor vehicle insurance, airline fares, used cars and trucks, and apparel more than offset price increases in food, recreation, medical care, household furnishings, operations, new vehicles, and shelter. The index less food and energy fell 0.1% in May, its third consecutive monthly decline. This is the first time this index has ever declined in three consecutive months.
  • Prices at the producer level increased in May. According to the latest report from the Bureau of Labor Statistics, the Producer Price Index rose 0.4% last month and is up 0.8% for the 12 months ended in May. This is the first monthly increase in producer prices in the last 3 months. The increase in producer prices in May is attributable to a 1.6% hike in goods prices, which saw food prices spike 6.0% and energy prices climb 4.5%. On the other hand, prices for services fell 0.2% in May, the same decline as in April.
  • Prices for U.S. imports increased 1.0% in May after declining 2.6% in April and 2.4% in March. The May advance was led by higher fuel prices, which increased by 20.5%. The May jump in fuel prices was the largest monthly advance in the history of the index. The price index for U.S. exports rose 0.5% in May following a 3.3% drop the previous month.
  • According to the latest Job Openings and Labor Turnover report, April saw total separations fall by 4.8 million from March. Despite the decline, April’s level of total separations is the second highest in series history. Job openings decreased to 5.0 million, and hires declined to 3.5 million, a series low. The changes in these measures reflect the effects of the COVID-19 pandemic and efforts to contain it.
  • For the week ended June 6, there were 1,542,000 claims for unemployment insurance, a decrease of 355,000 from the previous week’s level, which was revised up by 20,000. According to the Department of Labor, the advance rate for insured unemployment claims decreased 0.2 percentage point to 14.4% for the week ended May 30. The advance number of those receiving unemployment insurance benefits during the week ended May 30 was 20,929,000, a decrease of 339,000 from the prior week’s level, which was revised down by 219,000.

Eye on the Week Ahead

This week is relatively slow with respect to market-moving economic reports. However, one entry that bears watching is the Federal Reserve’s report on industrial production for May. April saw overall production regress by 11.2%, and manufacturing fall by 13.7%. With partial easing of COVID-related restrictions, May’s production numbers should be better.

What I’m Watching This Week – 8 June 2020

The Markets (as of market close June 5, 2020)

Despite nationwide protests and U.S.-China tensions, stocks rose to start the week. Apparently, investors focused on progress toward economic recovery instead of other pressing issues. Of the benchmarks listed here, the small caps of the Russell 2000 and the tech-heavy Nasdaq led the way, each gaining more than 0.60% by the end of trading last Monday.

Stocks continued to perform well, as each of the indexes listed here posted notable gains. The S&P 500 rose to its highest level since March 4 while businesses reopen at home and abroad. Energy stocks climbed on hopes of an extension to the current production limits by OPEC. Crude oil prices climbed, the dollar fell, and 10-year Treasury yields advanced as long-term bond prices dipped.

Market indexes enjoyed gains for the third consecutive day last week as each of the benchmarks posted notable gains, led by the Russell 2000 (2.39%), the Global Dow (2.17%), and the Dow (2.05%). Optimism about economic reopening helped keep the rally going last Wednesday. Winning sectors included financials, industrials, and energy stocks.

Claims for unemployment insurance increased for the first time in several weeks, following last Thursday’s report. Stocks ended the day flat to down as the S&P 500 ended its four-session winning streak. Crude oil prices continued to rise, as did long-term bond yields.

To say the data from Friday’s jobs report was unexpected is an understatement. Over 2.5 million new jobs were added in May and the unemployment rate fell by 1.3 percentage points — results that apparently are baffling economists. Investors poured money into stocks, driving the benchmark indexes to remarkable single-day totals. The Russell 2000 and the Dow both posted daily gains in excess of 3.0%. The Global Dow and S&P 500 climbed nearly 2.5%, respectively. And the tech-heavy Nasdaq advanced a little more than 2.0%. While most sectors enjoyed favorable returns, notable performers were found in energy, aerospace, banks, homebuilders, apparel, hospitals, and packaging. Crude oil prices climbed $1.75 for the day. The yield on 10-year Treasuries added 0.08 basis points, or 10.24%.

For the week, the Nasdaq enjoyed the lowest gain, and that was still nearly 3.5%. The small caps of the Russell 2000 soared, gaining more than 8.0%, followed by the Global Dow, the Dow, and the S&P 500. The jobs report stoked the flames of economic recovery. The S&P 500 is up more than 40% from its March low, and Treasury yields climbed to their highest level in 11 weeks as bond prices plummeted. After last week’s push, each of the benchmark indexes listed here are nearing their respective year-end values, with the Nasdaq already nearly 10.0% ahead. In Europe, the STOXX 600 had its best week in months. Asian stocks rose by nearly 5.0%.

Crude oil prices posted their sixth weekly gain, closing the week at $39.16 per barrel by late Friday afternoon, up from the prior week’s price of $35.34. The price of gold (COMEX) sank last week, closing at $1,688.30 by late Friday afternoon, down from the prior week’s price of $1,745.80. For the sixth week in a row, gas prices rose. The national average retail regular gasoline price was $1.974 per gallon on June 1, 2020, $0.014 higher than the prior week’s price but $0.833 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 6/5 Weekly Change YTD Change
DJIA 28,538.44 25,383.11 27,110.98 6.81% -5.00%
Nasdaq 8,972.60 9,489.87 9,814.08 3.42% 9.38%
S&P 500 3,230.78 3,044.31 3,193.93 4.91% -1.14%
Russell 2000 1,668.47 1,394.04 1,507.15 8.11% -9.67%
Global Dow 3,251.24 2,749.85 2,949.64 7.27% -9.28%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.64% 0.90% 26 bps -101 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • In what has no doubt surprised and baffled economists, the jobs report for May saw employment rise by 2.5 million and the unemployment rate drop 1.4 percentage points to 13.3%. These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the COVID-19 pandemic and efforts to contain it. In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. By contrast, employment in government continued to decline sharply. The number of unemployed persons fell by 2.1 million to 21.0 million. While these numbers are better, put in perspective, the unemployment rate and number of unemployed persons are up 9.8 percentage points and 15.2 million, respectively, since February. The labor force participation rate increased by 0.6 percentage point in May to 60.8%, following a decrease of 2.5 percentage points in April. After an 8.7 percentage-point decline in April, the employment-population ratio rose by 1.5 percentage points to 52.8% in May. In May, average hourly earnings fell by $0.29 to $29.75, primarily due to job gains among lower-paid workers. Since May 2019, average hourly earnings are up $1.88. The average workweek increased by 0.5 hour to 34.7 hours in May.
  • While economic activity in the manufacturing sector continued to regress in May, it did not fall to the depths seen in April. According to the Manufacturing ISM® Report On Business®, the May purchasing managers’ index registered 43.1%, up 1.6 percentage points from April. New orders, production, prices, new export orders, and employment each posted better readings in May compared to the prior month.
  • IHS Markit U.S. Manufacturing PMI™ saw May data signal a softer, but nonetheless severe, contraction in U.S. manufacturing output driven by further weakening of client demand and lower requests for new orders. But like the ISM® report, survey respondents noted that manufacturing wasn’t as bad in May as it was in April.
  • Economic activity in the services sector contracted for the second consecutive month in May, although it was better than April. According to the Non-Manufacturing ISM® Report On Business®, the non-manufacturing index was 45.4%, 3.6 percentage points better than the April reading. A reading less than 50.0% indicates contraction. Business activity, new orders, and employment also showed more activity in May than the previous month, yet each component registered less than 50.0%.
  • The goods and services trade deficit increased by $7.1 billion, or 16.7%, in April over March. April exports were $38.9 billion, or 20.5%, less than March exports. April imports were $31.8 billion, or 13.7%, less than March imports. Year to date, the goods and services deficit sits at $168.5 billion, a decrease of $26.0 billion, or 13.4%, from the same period in 2019.
  • For the week ended May 30, there were 1,877,000 claims for unemployment insurance, a decrease of 249,000 from the previous week’s level, which was revised up by 3,000. According to the Department of Labor, the advance rate for insured unemployment claims increased 0.5 percentage point to 14.8% for the week ended May 23. The advance number of those receiving unemployment insurance benefits during the week ended May 23 was 21,487,000, an increase of 649,000 from the prior week’s level, which was revised down by 214,000.

Eye on the Week Ahead

The Federal Open Market Committee meets this week. Following its last meeting, the FOMC kept interest rates at their current level but indicated that more stimulus would be forthcoming if necessary.

Monthly Market Review – May 2020

The Markets (as of market close May 29, 2020)

May saw several states and foreign countries ease restrictions put in place in response to the COVID-19 pandemic. As economies slowly picked up momentum, investors grew more confident in stocks, driving values higher. However, investor optimism was kept in check by sobering economic reports and growing tensions between the United States and China.

The unemployment rate reached its highest level since the Great Depression while claims for unemployment insurance soared past 25 million. Economic output lagged in April as expected. Hardest hit were automakers, restaurants, and airlines. The month closed with a speech from President Trump condemning China over the pandemic, Hong Kong, and several other “broken promises.”

Despite these issues, investors drew optimism from the possibility that a COVID-19 vaccine is on the horizon, the gradual lifting of lockdowns, and the stimulus efforts in play. While May didn’t see the double-digit gains enjoyed in April, the benchmark indexes listed here still managed to post encouraging returns. The tech-heavy Nasdaq led the way, followed closely by the small caps of the Russell 2000, each index ending the month more than 6.0% ahead. The large caps of the Dow and S&P 500 advanced by more than 4.0%, and the Global Dow increased by over 3.25%.

Year to date, only the Nasdaq is comfortably ahead of its 2019 closing value. The S&P 500 is less than 6.0% from breakeven, while the other indexes listed here remain well off their year-end pace.

By the close of trading on April 30, the price of crude oil (CL=F) sank to $19.04 per barrel, well below the March 31 price of $20.35 per barrel. Reeling oil values sent prices at the pump spiraling downward. The national average retail regular gasoline price was $1.960 per gallon on May 25, up from the April 27 selling price of $1.773 but $0.862 less than a year ago. The price of gold rose by the end of April, climbing to $1,691.00 by close of business on the 30th, up from its $1,591.20 price at the end of March.

Stock Market Indexes

Market/Index 2019 Close Prior Month As of May 29 Month Change YTD Change
DJIA 28,538.44 24,345.72 25,383.11 4.26% -11.06%
Nasdaq 8,972.60 8,889.55 9,489.87 6.75% 5.76%
S&P 500 3,230.78 2,912.43 3,044.31 4.53% -5.77%
Russell 2000 1,668.47 1,310.66 1,394.04 6.36% -16.45%
Global Dow 3,251.24 2,661.71 2,749.85 3.31% -15.42%
Fed. Funds 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.62% 0.64% 2 bps -127 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Latest Economic Reports

  • Employment: In April, the unemployment rate increased by 10.3 percentage points to 14.7%. This is the highest rate and the largest over-the-month increase in the history of the series. The number of unemployed persons rose by 15.9 million to 23.1 million in April. The sharp increases in these measures reflect the effects of the coronavirus pandemic and efforts to contain it. The number of unemployed persons who reported being on temporary layoff increased about tenfold to 18.1 million in April. The number of permanent job losses increased by 544,000 to 2.0 million. The labor force participation rate decreased by 2.5 percentage points over the month to 60.2%, the lowest rate since January 1973. Total employment fell by 22.4 million to 133.4 million. The employment-population ratio, at 51.3%, dropped by 8.7 percentage points over the month. This is the lowest rate and largest over-the-month decline in the history of the series. In April, employment in leisure and hospitality plummeted by 7.7 million, or 47.0%. Almost three-quarters of the decrease occurred in food services and drinking places (-5.5 million). Employment also fell in the arts, entertainment, and recreation industry (-1.3 million) and in the accommodation industry (-839,000). In April, average hourly earnings for all employees rose by $1.34 to $30.01. The increases in average hourly earnings largely reflect the substantial job loss among lower-paid workers. The average workweek increased by 0.1 hour to 34.2 hours in April.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in May. Interest rates remained unchanged in May.
  • GDP/budget: The second estimate of the first-quarter gross domestic product showed economic growth decreased 5.0%. The GDP expanded at an annual rate of 2.1% in the fourth quarter. The decline in first-quarter GDP reflected the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending. Personal consumption expenditures (consumer spending) decreased by 6.8% (compared to 1.8% growth in the fourth quarter). Orders for durable goods fell 13.2%. Nonresidential fixed investment decreased 7.9%. Exports fell 8.7% while imports plummeted 15.5%. Consumer prices rose 1.3% (1.4% in the fourth quarter).
  • The government deficit in April was $738 billion, well ahead of the March deficit of $119 billion. Outlays for April totaled $980 billion, an increase of $624 billion over March and $604 billion over April 2019, largely due to the release of assistance related to the COVID-19. This assistance included Economic Impact Payments to individuals and families ($217 billion); Coronavirus Relief Fund payments to state, territorial, local and tribal governments ($142 billion); increases in Medicare and other Department of Health and Human Services programs ($146 billion); and increases in unemployment benefits and other Department of Labor programs ($46 billion). April receipts were $5 billion greater than March receipts but $294 billion lower than April 2019, as certain taxes from individuals and corporations were deferred until July.
  • Inflation/consumer spending: According to the Personal Income and Outlays report for April, both personal income and disposable (after-tax) income did an about-face, increasing 10.5% and 12.9%, respectively, after plunging in March. Consumer spending continued to fall, down 13.6% in April after declining 7.5% the previous month. Price inflation remained low, however, as consumer prices dropped 0.5%. Over the last 12 months, consumer prices are up only 0.5%.
  • The Consumer Price Index fell 0.8% in April after dropping 0.4% in March. The April decrease was the largest monthly decline since December 2008. Over the last 12 months, the all items index increased 0.3%. A 20.6% decline in gasoline prices was a major cause of the monthly decrease, but apparel, motor vehicle insurance, airline fares, and lodging away from home all fell sharply as well. In contrast, the food index rose in April, with the index for food at home posting its largest monthly increase since February 1974.
  • Prices producers receive for goods and services followed a 0.2% decline in March with a 1.3% fall in April — the largest decrease since the index began in December 2009. The Producer Price Index moved down 1.2% for the 12 months ended in April, the largest decline since falling 1.3% for the 12 months ended November 2015. Prices less foods, energy, and trade services fell 0.9% in April, the largest decline since the index was introduced in September 2013. The index for goods fell 3.3% in April, the largest decline since the series began in December 2009. Most of the broad-based decrease is attributable to prices for energy, which fell 19.0%.
  • Housing: Sales of existing homes plunged 17.8% in April after falling 8.5% in March. Year over year, existing home sales are down 17.2%. April’s decline in existing home sales is the largest month-over-month drop since July 2010 (-22.5%). The median sales price for existing homes was $286,800 in April compared to $280,600 in March. Existing home prices were up 7.4% from April 2019. Total housing inventory at the end of April represented a 4.1-month supply at the current sales price. Sales of new single-family homes followed a 15.4% decline in March by climbing 0.6% in April. Sales are 6.2% below the April 2019 estimate. The median sales price of new houses sold in April was $309,900 ($321,400 in March). The average sales price was $364,500 in April ($375,300 in March). Available inventory in April sat at a 6.3-month supply, essentially the same rate of availability as in March.
  • Manufacturing: Industrial production plummeted 11.2% in April after falling 5.4% in March. The April decline was the largest monthly drop in the 101-year history of the index, as the COVID-19 pandemic led many factories to slow or suspend operations throughout the month. Manufacturing output dropped 13.7%, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70.0% while production elsewhere in manufacturing dropped 10.3%. Utilities and mining decreased 0.9% and 6.1%, respectively. Total industrial production was 15.0% lower in April than it was a year earlier.
  • New orders for durable goods followed a 16.6% decrease in March with a 17.2% drop in April. Over the last 12 months, new orders for durable goods are down 11.4%. While most manufacturers of durable goods saw orders fall, hardest hit sectors included motor vehicles and parts (-52.8%), transportation equipment (-47.3%), and defense aircraft and parts (-32.7%). New orders for capital goods (manufactured assets used by businesses to produce consumer goods) fell 1.8% in April, dragged down by defense capital goods as new orders for nondefense capital goods rose 8.2%.
  • Imports and exports: Import prices fell 2.6% in April following a 2.4% decline in March. The April decrease in import prices was the largest decline since import prices fell 3.2% in January 2015. Since April 2019, import prices have fallen 6.8%, the greatest year-over-year fall since import prices dropped 8.3% for the 12 months ended in December 2015. Fuel imports plunged 31.5% in April, the largest monthly decline in the history of the index. Prices for exports dropped 3.3% in April after a 1.7% decline in March. This is the largest monthly decrease in export prices since the index was first published. Prices for exports decreased 7.0% on a 12-month basis from April 2019, the largest over-the-year decline since a 7.3% drop for the year ended September 2015.
  • The international trade in goods deficit was $69.7 billion in April, up $4.7 billion, or 7.2%, from $65.0 billion in March. Exports of goods for April were $95.4 billion, $32.2 billion less than March exports. Imports of goods for April were $165.0 billion, $27.5 billion less than March imports.
  • The latest information on international trade in goods and services is for March and shows that the goods and services trade deficit was $44.4 billion, an increase of $4.6 billion, or 11.6%, over the February deficit. March exports were $187.7 billion ($207.7 billion in February). March imports were $232.2 billion ($247.5 billion in February).
  • International markets: As more countries relaxed COVID-19 restrictions, economies and stock markets began to slowly show favorable movement. The European Union proposed a 750 billion euro recovery fund. The news in other countries was not as good. Brazil lost more than one million jobs over the past two months due to the pandemic. Security restrictions from China and the COVID-19 virus have stunted economic growth in Hong Kong. That country’s first quarter gross domestic product fell 5.3% from the prior quarter. In China, industrial production continued to recover in April, albeit at a moderate pace.
  • Consumer confidence: The Conference Board Consumer Confidence Index® held steady in May following a sharp decline in April. The index climbed slightly to 86.6 from April’s 85.7. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — fell from 73.0 to 71.1. However, the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, improved from 94.3 in April to 96.9 in May.

Eye on the Month Ahead

April’s economic data was generally dreary. As more states eased restrictions put in place to help combat COVID-19, May should show a slight uptick in some economic sectors.

What I’m Watching This Week – 1 June 2020

The Markets (as of market close May 29, 2020)

With the stock market closed last Monday in observance of Memorial Day, Tuesday’s trading led to solid returns for each of the benchmark indexes listed here. The S&P 500 climbed past the 3000 mark for the first time since March, only to trickle below by the end of the day. The small caps of the Russell 2000 led the indexes after climbing 2.77%, followed by the Dow (2.17%), the Global Dow (1.96%), and the Nasdaq (0.17%). Stocks soared for most of the day, only to be tempered later on Tuesday after a report arose that President Trump was considering imposing sanctions on Chinese officials.

The Dow closed up over 2.0% on Wednesday to reach 25,000 for the first time since early March. The S&P 500 gained nearly 1.5%, pushing past 3,000 for the first time since March 5. The Nasdaq was held back by some large tech stocks, yet still managed to close up by over 0.75%. The small caps of the Russell 2000 surged ahead by more than 3.0% by the close of trading last Wednesday. The possibility of cash incentives to get people back to work was another sign that the economy is slowly beginning to rally. Globally, the STOXX Europe 600 index rose 0.2% on the heels of the European Union’s proposal of an $825 billion recovery fund to help offset the economic ravages caused by the pandemic.

Fears that President Trump would take action against China sent markets reeling at the end of the day last Thursday. Stocks fell for the first time in four days as each of the U.S. benchmarks listed here closed the day in the red. Only the Global Dow posted a modest gain. Reopening economies provided optimism for foreign investors, pushing European stocks higher. Crude oil prices continued to climb, gaining nearly 2.0% on the day.

Investor optimism remains driven by the prospects of an economic recovery. Stocks surged ahead last Friday and for the week, despite President Trump’s condemnation of China for its handling of the pandemic and its increasing attempt to exert control in Hong Kong, although he did not suggest the imposition of further economic sanctions.

For the week, each of the benchmarks listed here posted solid gains, led by the Global Dow, pushed ahead by growing economic hopefulness in both Europe and Asia. The Dow gained nearly 4.0%, followed by the S&P 500, the small caps of the Russell 2000, and the tech stocks of the Nasdaq. Year to date, the Nasdaq is close to 6.0% ahead of its 2020 starting point, while the S&P 500 is quickly closing the gap.

Crude oil prices vaulted ahead again last week, closing at $35.34 per barrel by late Friday afternoon, up from the prior week’s price of $33.33. The price of gold (COMEX) rebounded last week, closing at $1,745.80 by late Friday afternoon, up from the prior week’s price of $1,734.00. Gas at the pump continues to rise. The national average retail regular gasoline price was $1.960 per gallon on May 25, 2020, $0.082 higher than the prior week’s price but $0.862 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 5/29 Weekly Change YTD Change
DJIA 28,538.44 24,465.16 25,383.11 3.75% -11.06%
Nasdaq 8,972.60 9,324.59 9,489.87 1.77% 5.76%
S&P 500 3,230.78 2,955.45 3,044.31 3.01% -5.77%
Russell 2000 1,668.47 1,355.53 1,394.04 2.84% -16.45%
Global Dow 3,251.24 2,640.16 2,749.85 4.15% -15.42%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.65% 0.64% -1 bps -127 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • The gross domestic product decreased at an annual rate of 5.0% in the first quarter of 2020, according to the second estimate released by the Bureau of Economic Analysis. The GDP increased 2.1% in the fourth quarter. Real gross domestic income decreased 4.2% in the first quarter, in contrast to an increase of 3.1% (revised) in the fourth quarter. The price index for gross domestic purchases increased 1.7% in the first quarter, compared with an increase of 1.4% in the fourth quarter. Consumer prices increased 1.3% in the first quarter, compared with an increase of 1.4% in the fourth quarter.
  • Inflationary pressures remain low, while personal income soared in April, according to the latest figures from the Bureau of Economic Analysis. Prices paid by consumers for goods and services fell 0.5% last month and are up a scant 0.5% over the past 12 months. Personal income and disposable personal income increased 10.5% and 12.9%, respectively. The increased income didn’t translate to increased consumer purchases, however. Personal consumption expenditures dropped 13.6% in April. Clearly, these figures were significantly impacted by the pandemic. For instance, personal income expanded but wages and salaries fell. The increase in personal income is attributable largely to unemployment benefits paid.
  • The advance report on international trade in goods revealed a deficit of $4.7 billion in April, 7.2% greater than the deficit in March. Exports decreased 25.2% last month. Imports fell 14.3% from March. Exports and imports for automotive vehicles fell dramatically, declining 68.5% and 55.2%, respectively.
  • Sales of new single-family homes rose by 0.6% in April, according to the latest report from the Census Bureau. However, new home sales are down 6.2% from April 2019. The median sales price of new houses sold in April 2020 was $309,900 ($326,900 in March). The average sales price was $364,500 ($377,400 in March). The estimate of new houses for sale at the end of April was 325,000. This represents a supply of 6.3 months at the current sales rate.
  • New orders for manufactured durable goods in April decreased $35.4 billion, or 17.2%. This decrease, down three of the last four months, followed a 16.6% March decrease. Excluding transportation, new orders decreased 7.4%. Excluding defense, new orders decreased 16.2%. Transportation equipment, also down three of the last four months, led the decrease, down $23.9 billion, or 47.3%. Shipments of manufactured durable goods in April, down three of the last four months, decreased $41.5 billion, or 17.7%. Unfilled orders for manufactured durable goods in April, down two consecutive months, decreased $17.5 billion, or 1.6%. Inventories of manufactured durable goods in April, up two consecutive months, increased $0.7 billion, or 0.2%. On the other hand, nondefense new orders for capital goods in April increased $3.8 billion, or 8.2%.
  • For the week ended May 23, there were 2,123,000 claims for unemployment insurance, a decrease of 323,000 from the previous week’s level, which was revised up by 8,000. According to the Department of Labor, the advance rate for insured unemployment claims decreased 2.6 percentage points to 14.5% for the week ended May 16. The advance number of those receiving unemployment insurance benefits during the week ended May 16 was 21,052,000, a decrease of 3,860,000 from the prior week’s level, which was revised down by 161,000.

Eye on the Week Ahead

Key economic data out this week focuses on the employment numbers for May. April saw 20.5 million jobs lost and an unemployment rate that soared to 14.7%.

What I’m Watching This Week – 26 May 2020

The Markets (as of market close May 22, 2020)

The major benchmarks opened the week on a high note, led by the Russell 2000, which gained more than 6.0%. The large caps of the Dow (3.85%) and S&P 500 (3.15%) posted notable gains, as did the Global Dow (3.67%). The tech-heavy Nasdaq climbed nearly 2.5%. Investors were buoyed by positive COVID-19 news. Data showed new cases of the virus were growing at the slowest rate in months. Monday morning, biotech company Moderna reported encouraging results from human testing of a vaccine. This followed Sunday night’s remarks from Federal Reserve Chair Jerome Powell that more monetary stimulus may be on the way.

Stocks couldn’t keep up with the pace set on Monday, as gains were relinquished by the close of trading Tuesday. Investors seemed to ride the wave of information on a possible COVID-19 vaccine from Moderna. While Monday’s report was upbeat, another article on Tuesday questioned the sufficiency of the study’s data. Crude oil prices continued to rise, reaching $32.36 by late Tuesday afternoon.

Wednesday saw stocks rebound, led by the small caps of the Russell 2000, which jumped 3.0%, followed by the tech-heavy Nasdaq, and the large caps of the S&P 500 and the Dow. Once again, investors got encouraging news about a vaccine from another biotech firm. As more states relaxed restrictions, investors gleaned hope of an economic restart. Finally, oil prices rose for the fifth consecutive day. Many consumers are noticing higher gas prices at the pumps just in time for Memorial Day and the unofficial start of summer.

Thursday saw stocks dip on news of an additional 2.4 million claims for unemployment insurance last week, pushing the total number of claimants past 25 million. Adding to investor angst is rising trade tension between the United States and China. Energy, tech, and utilities sectors took hits, and gold prices fell while crude oil climbed for the sixth straight trading day. Of the benchmarks listed here, only the Russell 2000 grew, while the remaining indexes ended the day in the red.

Friday was a mixed bag of information and returns in the market. The Dow and Global Dow each fell less than a point while the S&P 500, the Nasdaq, and the Russell 2000 each ticked up less than a point. Trouble between Hong Kong and Beijing sparked protests and drove Asian securities lower, adding to the tensions between the United States and China. On the other hand, states continued to gradually relax stay-at-home orders. The price of crude oil fell for the first time in several days yet closed the week ahead.

Overall, the benchmark indexes listed here posted solid weekly returns, led by the small caps of the Russell 2000, which climbed nearly 8.0%. The remaining indexes ended the week with gains of over 3.0%, respectively. Long-term bond yields remained about the same as bond prices were relatively stable.

Crude oil prices continue to climb, closing last week at $33.33 per barrel by late Friday afternoon, up from the prior week’s price of $29.71. The price of gold (COMEX) dipped last week, closing at $1,734.00 by late Friday afternoon, down from the prior week’s price of $1,752.50. The national average retail regular gasoline price was $1.878 per gallon on May 18, 2020, $0.027 higher than the prior week’s price but $0.974 less than a year ago.

Stock Market Indexes

Market/Index 2019 Close Prior Week As of 5/22 Weekly Change YTD Change
DJIA 28,538.44 23,685.42 24,465.16 3.29% -14.27%
Nasdaq 8,972.60 9,014.56 9,324.59 3.44% 3.92%
S&P 500 3,230.78 2,863.70 2,955.45 3.20% -8.52%
Russell 2000 1,668.47 1,256.99 1,355.53 7.84% -18.76%
Global Dow 3,251.24 2,549.34 2,640.16 3.56% -18.80%
Fed. Funds target rate 1.50%-1.75% 0.00%-0.25% 0.00%-0.25% 0 bps -150 bps
10-year Treasuries 1.91% 0.64% 0.65% 1 bps -126 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • New home construction took a historic dip in April, according to the latest report from the Census Bureau. Housing starts fell 30.2% in April from March, the largest monthly percentage decline on record. April’s rate is 29.7% below the April 2019 rate. Single-family housing starts in April were 25.4% below the March figure. The number of building permits issued in April were 20.8% below the previous month’s level and 19.2% under the April 2019 rate. Permits for construction of single-family homes were down 24.3% for the month. Home completions were 8.1% below the March estimate and 11.8% under the rate a year ago. Single-family home completions in April were 4.9% under the March total.
  • Sales of existing homes plummeted for the second consecutive month in April, falling 17.8% from the March sales pace. Overall, sales of existing homes are down 17.2% from a year ago. April’s sales have fallen to the lowest level and the largest month-over-month drop since July 2010 (-22.5%). The median price for existing homes sold in April was $286,800, 2.2% higher than the previous month’s price ($280,600), and 7.4% over the median price last April ($267,000). Total housing inventory was 1.47 million units, down 1.3% from March and 19.7% lower than the April 2019 total. Unsold inventory sits at a 4.1-month supply at the current sales pace, up from 3.4 months in March.
  • For the week ended May 16, there were 2,438,000 claims for unemployment insurance, a decrease of 249,000 from the previous week’s level, which was revised down by 294,000. According to the Department of Labor, the advance rate for insured unemployment claims was 17.2% for the week ended May 9, an increase of 1.7 percentage points from the previous week’s rate, which was revised down by 0.2 percentage point from 15.7% to 15.5%. The advance number of those receiving unemployment insurance benefits during the week ended May 9 was 25,073,000, an increase of 2,525,000 from the prior week’s level, which was revised down by 285,000.

Eye on the Week Ahead

The last week of the month brings with it the remaining key economic reports for April. Two reports that will warrant particular attention are the gross domestic product report for the first quarter and the personal income and outlays report. This is the second iteration of the first-quarter GDP and is based on more complete data. The initial reading last month saw the economy regress by 4.8% from the fourth quarter of last year. The April report for personal income and outlays is expected to show notable drops in consumer income, spending, and prices for consumer goods and services.