Index Performance – week ending 5/1/2020:
S&P 500: -0.21%
Dow Jones Industrial Average: -0.22%
Nasdaq Composite: -0.34%
US equities were little changed this week, as poor economic data continued to roll in and overall better than expected earnings from technology bellwethers failed to fuel further gains. The S&P 500 Index closed out April with a 12.7% gain, its best month since January 1987 and the largest increase for April since 1938.
“April was a historic rally for stocks, but the worries continue to add up,” explained LPL Financial Senior Market Strategist Ryan Detrick. “We are seeing some of the worst economic data of our lifetime and stocks are quite overbought after the rally, so be open to continued rocky seas in the near term.”
As the chart below shows, returns immediately following historic monthly gains can be mixed, but tend to be very strong longer-term.
Value stocks led growth, and strong gains from small-caps allowed the Russell 2000 to end the week in the green, despite falling late in the week. The energy sector was the top performer for the second consecutive week, while the more defensive utilities sector lagged.
Most international markets were closed Friday for Labour Day, but through Thursday both the MSCI EAFE Index and MSCI Emerging Markets Index had gained more than 4%.
Europe’s economy suffered its largest contraction since European Union data began in 1995. Gross domestic product (GDP) shrank by 3.5% in the first quarter versus the final quarter last year. France and Italy’s GDP dropped by 5.8% and 4.7%, respectively. France’s decline was the worst since 1949.
Fixed Income and Commodities
A choppy week of trading concluded for bonds, as investors continued to grapple with equity earnings, weak economic data, and increasing discussion of reopening the economy. First quarter US GDP declined more than expected, falling 4.8% quarter over quarter and suffered the largest decline since the financial crisis, driven by a sharp drop in personal consumption. As growth and consumer confidence continued to suffer, skepticism remained reopening segments of the economy. Yields across the Treasury curve were little changed on the week, and credit spreads remained at elevated levels.
Comments from the April Federal Open Market Committee (FOMC) meeting signaled that the Federal Reserve (Fed) was unlikely to remove its extraordinary policy support anytime soon, pushing the dollar lower on the week. The softer dollar environment proved to be a tailwind for WTI crude oil, which caught a bid following last week’s wild ride that saw May futures contracts trade negative.
Looking ahead, Friday is the big day, as investors will finally receive the much-anticipated unemployment rate following a brutal 6-week stretch of jobless claims where 30 million US citizens filed for unemployment benefits. Bloomberg surveys currently estimate 16% of the workforce is unemployed. Thursday will bring the March durable goods orders release, which measures domestic manufacturers’ contracts for delivery of factory hard goods. A bevy of Markit Purchasing Managers’ Index (PMI) data headlines the international slate in an otherwise quiet week overseas.
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