Economic Update 5-18-2020
- Economic data continued to reflect the negative reality of Covid closures, with retail sales and jobless claims continuing to show extreme weakness, as well as a deceleration in inflation. On the other hand, manufacturing sentiment gained a bit—especially in future expectations—while consumer sentiment also improved.
- Global equity markets fell back last week, as sentiment soured surrounding economic data, further stimulus, Covid infection rates, and foreign relations. Bonds were flat to higher with interest rates remaining tempered. Commodities rose slightly as crude oil prices continued to recover.
U.S. stocks fell back again last week, with sentiment about a faster recovery from Covid waning somewhat, in perhaps an acknowledgement of a ‘V’ turning into more a ‘U’ (as discussed above). Presidential and Senate pushback on a new Congressional $3 tril. relief package also appeared to add to soured sentiment, as did ramped-up rhetoric about a further cutting of economic ties with China. Persistent Covid infection rates, including in some nations with reopened economies, also was of concern due to the ramifications in the U.S. and broader global growth. Large caps have outperformed small caps sharply, due to a continued focus on investors seeking growth and stability where it can be found. By sector, health care stocks led the way, as the only group with positive returns, while cyclically-sensitive energy, industrials, and financials lost -6% or more each, as did real estate.
Foreign stocks in the U.K. and Europe fared similar to those in the U.S. in local terms, although a stronger dollar acted as a headwind, resulting in further declines. Stocks in Japan and the emerging markets fared a bit better. Chinese data from an economic activity front continues to show improvement from lows, including industrial activity, as the nation continues to emerge from more widespread lockdowns.
U.S. bonds gained a bit, with investors moving away from risk assets, causing yields along the longer end of the yield curve to tick down a few basis points. Front-end yields up to the next several years remain anchored between zero and a quarter-percent, in expectations for continued easy Fed rate policy. Investment-grade credit outperformed government slightly, although high yield bonds suffered losses in keeping with equities. Foreign developed and emerging market bonds were little changed in local terms, but were pulled down by a strong dollar.
Commodities ticked higher generally, led by gains in energy and precious metals, while trade-related industrial metals and agriculture fell. The price of crude oil recovered by about 10% on the week to just under $30/barrel, with continued expectations for demand to slowly recover, coupled with planned production cuts.
|Period ending 5/15/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.33||4.86|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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