Stocks opened lower. The S&P 500 Index is going for a five-session win streak after locking in its biggest 50-day rally in its history. Stocks pared earlier losses after the European Central Bank (ECB) stimulus announcement before pulling back on disappointing jobless claims data. Overnight, Asian markets were flat to slightly higher, while Europe’s Stoxx 600 Index is lower after post-stimulus-announcement gains faded.
Europe staging a turnaround. The MSCI Europe Index has returned 16.7% since May 15, well ahead of the S&P 500’s 9.2% advance, despite a more challenged economic outlook. Currency helped, as the euro has gained about 3.5% versus the dollar since May 15. The rotation into value stocks and prospects for more stimulus also helped.
ECB goes bigger, Germany hammers out stimulus. The ECB expanded its bond purchase program by 600 billion euros and extended the time horizon for support beyond year-end to June 2021 as it plays catch-up with massive US initiatives. Meanwhile, German Chancellor Angela Merkel’s coalition finalized a larger-than-expected 130 billion euro stimulus package.
New unemployment claims continue to decline. While new claims for unemployment remain elevated at 1.9 million for the week ending May 30 (FactSet), this is the ninth consecutive week they have declined. With the economy gradually reopening across the country, we expect the trend to continue, but it is likely to take some time before the job market fully recovers.
Dollar weakness may continue. The skyrocketing US deficit, thanks to pandemic response stimulus, is dollar negative, all else equal. US interest rates and Federal Reserve policy increasingly resemble the rest of the developed world, and the developing global economic recovery may put further pressure on the US dollar, supporting international equities.
Best 50-day rally ever. In the last 50 trading days, stocks have gained 39.6%, for the largest 50-day rally since the S&P 500 moved to 500 stocks in 1957. Read more in today’s LPL Research blog.
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