Stocks opened lower. Stocks are down slightly this morning as investors weigh progress toward reopening economies and stimulus packages versus escalating US-China tensions and unrest in many US cities. Overnight the MSCI Asia Pacific Index climbed 1.6%, while the Stoxx 600 Index in Europe is solidly higher in midday trading.
US-China tensions rising. The Trump administration removed Hong Kong’s special trading status but did not pull out of the US-China trade deal or impose sanctions. Tensions are rising on reports China may pause soybean purchases from the United States. Though the president’s response didn’t go as far as some had feared—limiting the market impact—the risk of the US-China trade deal unraveling has risen.
Another positive May. The S&P 500 Index returned 4.5% in May, the fifth straight May gain for stocks; eight out of the last nine Mays have delivered gains. While “sell in May” didn’t pan out this year, we anticipate the rally will slow down in June as the economy begins to move to the more difficult next phase of recovery amid heightened US-China tensions.
Week ahead. This week’s US economic calendar kicks off with the ISM manufacturing survey today: Consensus is 43.8, up from 41.5 in April. Friday’s jobs report is expected to show 8 million net jobs lost in May and a five-point increase in the unemployment rate to 19.7% (source: Bloomberg). The European Central Bank is expected to increase its bond purchases at its meeting on Thursday.
Latest COVID-19 news. Overall, trends in the United States continue to improve, including in New York, but progress in some states remains uneven. The United Kingdom will allow some schools to open today. Italy is preparing to lift a ban on inter-regional travel on June 3. More stimulus in Europe is coming soon.
Are You Confused? LPL Research Senior Market Strategist Ryan Detrick explains the disconnect between stocks and the economy in the most recent Street View video, featured today on the LPL Research blog.
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