Index Weekly Performance:
S&P 500: -1.32%
Dow Jones Industrial Average: -1.93%
Nasdaq Composite: -0.18%
US equities moved lower on the week as volatility in the oil patch dominated headlines. Despite collapsing oil prices, the energy sector was the lone sector positive, underscoring how much pessimism was priced into a group already down more than 40% this year. US deaths from COVID-19 surpassed 50,000, though there was positive news from some of the worst-hit areas as New York Governor Andrew Cuomo said the data suggests the state is on the “downside of the curve.”
Growth stocks led value, though small caps managed to outperform large caps for only the sixth week this year. In addition to the positive gains from energy stocks, the consumer discretionary sector was a relative leader, while the utilities and real estate sectors lagged.
International markets dipped alongside the US for the week. Through Thursday’s close, the MSCI EAFE and MSCI Emerging Markets Indexes were down more than 1%, and both Asia and Europe were markedly lower on Friday. Germany expects gross domestic product (GDP) to decline by 7% this year, while China’s growth rate may slow to 1.8%.
Yields were again under pressure as investors continued to face the reality of disappointing global economic data in the wake of the COVID-19 outbreak. Existing home sales fell 9% month over month in March, while IHS Markit Flash US Composite PMI reached a new series low in April. The US yield curve, as measured by the difference between the 10-year Treasury and 2-year Treasury, flattened on the week, while inflation expectations were particularly volatile as commodity markets commanded investor attention this week. Credit sensitive areas of the fixed income market underperformed.
The expiration of May futures contracts in WTI crude oil drove market volatility early in the week, as a confluence of events caused prices to trade in negative territory, a topic we explored in an earlier blog post. “Right now, we’re not driving that much, so the demand for oil is down and these refineries are chock full of oil—they couldn’t take them. So investors were actually going to have to exchange paper for barrels of oil to take home,” added LPL Financial Chief Investment Officer Burt White. June contracts for WTI crude oil ended the week near $17/barrel.
Next week’s US economic calendar features the initial look at first quarter GDP on Wednesday, where Bloomberg’s consensus estimate is calling for an annualized 3.9% decline. Other data include the Conference Board’s consumer confidence and trade balance on Tuesday, as well as pending home sales on Wednesday. Personal income, spending, and the core personal consumption expenditures (PCE) deflator will be released on Thursday. PCE is the Federal Reserve’s preferred inflation measure. We’ll see the Institute for Supply Management’s (ISM) manufacturing Purchasing Mangers’ Index PMI on Friday. In addition, the Federal Reserve policy committee will announce its policy decision on Wednesday. We expect no changes to interest rates, though more information on stimulus programs may be provided. About 150 S&P 500 companies will report first quarter earnings.
The international economic calendar will be highlighted by first quarter GDP for the Eurozone on Thursday—the consensus estimate is calling for a 3.5% quarter-over-quarter decline, not annualized. Other European data includes Eurozone consumer inflation and retail sales, as well as unemployment for Germany. The European Central Bank (ECB) will hold its policy meeting on Thursday. The Bank of Japan will issue its policy update on Monday, followed by several economic releases during the week, including retail sales, industrial production, and consumer confidence. China’s official PMI data is due out on Wednesday and is expected to remain in expansionary territory above 50 for the second straight month.
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