Index Performance – Week ending 5/22/2020
Performance as of 1:30 PM ET
S&P 500 Index: 2.96%
Dow Jones Industrial Average: 3.03%
Nasdaq Composite: 3.30%
US equities delivered solid returns this week. With three hours to go in the week, all three markets were up almost 3% for the week, with the best performer, once again, the technology-heavy Nasdaq. The small cap Russell 2000 Index enjoyed an impressive rally, with the index returning over 9% for the week. The mid-cap S&P 400 Index also had a solid showing, returning almost 9%.
Amid ongoing COVID-19 disruptions, rising unemployment, and risks associated with reopening the economy, US stocks continued to rebound. The rally was supported by all 50 states easing restrictions, based on improving COIVD-19 trends. Several timely indicators have pointed to a pickup in economic activity, including higher credit and debit card spending and an increase in travelers based on TSA data. Second quarter gross domestic product (GDP) could contract as much as 30% annualized, but global progress in reopening economies combined with massive stimulus measures point to a potentially strong rebound in the third and fourth quarters.
“The S&P 500 just had the second-best 40-day rally ever, with only the returns off the March 2009 lows better,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Near-term, we have some concerns of a well-deserved pullback, but historically, these huge moves have tended to resolve much higher over the ensuing 6- and 12-month periods.”
In a change of pace, industrials were the top-performing sector for the week, followed by the energy sector. The worst-performing sectors were healthcare and consumer staples, and they posted returns that were slightly negative for the week. Looking at style, large cap value stocks edged out large cap growth for the week.
The MSCI EAFE and the MSCI Emerging Markets Indexes rebounded from the previous week, with developed markets outperforming emerging markets by over 1%. One market that struggled was Hong Kong, where the Hang Seng Index on Friday saw its worst day in five years after Beijing moved to pass a controversial law that limited Hong Kong citizens’ civil liberties and freedoms. The bill’s passage most likely will cause friction between China, the Hong Kong citizens, and the United States
Adding additional concerns to the diplomatic relationship between the United States and China, the US Senate passed a bill that would prevent companies that refused to practice open accounting from listing on Wall Street. This bill was seen by many to be targeting Chinese companies, given their corporate structures.
European markets were higher this week, with the STOXX Europe 600 Index up over 4%. As in the United States, investors are concerned with COVID-19 and the subsequent reopening of the European economy, but European stocks were able to rally, as the pandemic has been slowing and countries are opening back up.
Fixed Income and Commodities
Bonds were mostly stronger on the week, even with equities rallying, led by returns from corporate and emerging market debt. Credit markets appear to be optimistic about the prospects of reopening the US economy, as credit default swaps on energy and consumer discretionary companies have continued to stabilize in recent weeks.
The Federal Reserve (Fed) purchased $1.8 billion in exchange-traded funds (ETF) over the first six days of this new policy. Fed Chair Jerome Powell has communicated publicly that negative rates have not been considered and will not be utilized. This is seen by LPL Research as a positive, which we discussed in our May 19th blog. Moreover, Powell also discussed how the Fed has many options to assist in aiding the economic recovery, including lending and more bond buying. The markets applauded the Fed chair’s comments and seem to have confidence in the Fed’s work.
Oil prices rallied with July contracts for WTI crude posting a gain of over 4% for the week, now trading north of $30 per barrel, adding to the impressive gains in the past month.. Gold finished weaker, as the yellow metal ended fractionally lower, consolidating following an impressive rally of nearly 15% year to date.
On Tuesday, we will receive data on home prices, along with new home sales, through the S&P/Case-Shiller Home Price Index and New Residential Sales from the US Census. New home sales have likely been decelerating given the current climate. Moreover, consumer confidence numbers from the Conference Board will be published. The consensus is that consumer confidence may be higher, which could be seen as a positive for a potentially quicker recovery in consumer spending.
Wednesday is all about the Fed Beige Book, which is a relatively important report, particularly given the current environment. We’ll also get the Richmond Fed Index. On Thursday, we receive new unemployment claims with optimism that the recent lower trend of claims continues. Also, we will be getting data on first quarter GDP, pending home sales, durable orders, as well as the Kansas City Fed manufacturing data. To finish the week, Friday’s reports will include personal consumption and income, along with wholesale inventories.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
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