Economic Update 6-08-2020

• Economic data released last week continued to show broad shutdown-based weakness over the past several months, in manufacturing, services, construction, and employment. However, some signs of improvement are being seen on the margin, which have been taken positively by financial markets.
• U.S. equity markets gained with signs of economic recovery and a strong jobs report later in the week; foreign markets moved higher to an even greater degree. Bonds lagged with interest rates ticking higher on this same strength. Commodities rose with another strong recovery in crude oil, as producing nations discussed further supply cuts and demand is up.

U.S. stocks gained sharply last week with reopenings steadily increasing across the country, and no ominous signs of spikes in reinfections so far. Prices peaked on Friday as the jobs report was not nearly as bad as expected; improvement in segments such as manufacturing sentiment also appeared to help. By sector, energy stocks gained over 15% with production cuts helping normalize oil prices, followed by cyclical industries financials and industrials up over 10%—in a bit of a ‘value’ rally. Real estate gained by a similar amount, upon an expected improving environment. Defensive sectors health care, staples, utilities experienced minimal, but still positive, gains.

Foreign stocks gained to an even greater degree than U.S. markets, with lockdown restrictions similarly easing, and an influx of fresh government stimulus slated to aid in the effort. This included a doubling in the size of the ECB’s emergency pandemic bond purchase program to over €1.3 tril., and additional fiscal stimulus from the German government toward a variety of projects, as well as tax cuts. Emerging markets outperformed developed nations in U.S. dollar terms, especially in regions such as Latin America, when tend to be more sensitive to globally-cyclical forces and commodity extraction activities. This was despite growing protests and social unrest in Brazil, as economic reopening despite higher virus rates than in other regions led to currency appreciation.

U.S. treasury bond prices experienced a rougher week as interest rates ticked up sharply Friday in response to the strong jobs report. However, high yield corporates and bank loans bucked the trend with positive returns, with high yield spreads having tightened sharply since the late March wides. Foreign developed and emerging market bonds both gained, largely due to a return to risk and weaker U.S. dollar.

Commodities gained last week with a weaker dollar and sentiment boost toward pro-cyclical assets, including energy and industrial metals, while precious metals lost ground. The price of crude oil rose by another 10%+ to just under $40/barrel upon news of further production cuts by OPEC+ nations, as well as Chinese import growth. The anomaly of giving away oil at negative prices appears to be a distant memory for now.

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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