Economic Update 6-15-2020

• Economic data for the week included the conclusion of the FOMC, where no monetary policy action was taken but the overall tone remained somber. In keeping with Covid-related economic disruptions, several inflation measures saw deceleration, consumer sentiment improved, while employment conditions continue show multi-decade weakness.
• U.S. equity markets fell around the globe with a somber assessment by the U.S. Federal Reserve, and an increase in new Covid cases in some regions. Foreign markets followed suit, albeit to a lesser degree. Treasury bonds fared well in the flight from risk, outperforming corporates. Commodities lost ground due to another pullback in energy prices.

In U.S. stocks, the week was largely defined by a large drawdowns on Wed. and Thurs. (the latter being the worst market day since mid-March), due to a surprise increase in new Covid cases in reopened states, and also likely worsened by the somberness of the Fed statement and Jerome Powell press conference. Some profit-taking was likely due as well, following such a sharp recovery in equity prices.

By sector, technology held up best, followed by communications and consumer staples—all with minimal losses. Cyclical energy and financials suffered the most, each down around -10%, as expected. Interestingly, some reports have discussed the amount of retail day trading that has dramatically increased, which has dramatically raised the volatility of some speculative stocks. A case study has been Hertz, which, despite declaring bankruptcy, decided to take advantage of its newly rallying stock price by issuing new common stock.

Foreign stocks also lost ground last week, with Japan and emerging markets faring best, with minimal declines, while Europe and the U.K. losing over -5% each. The causes have been similar to those in U.S.—another wave of new Covid infections. Record drops in output for the U.K. and Germany were reported, among other countries, which was not a surprise, but the magnitude was large. Nations more heavily exposed to world trade have been/will likely be hit hardest, but the damage is otherwise relatively consistent from nation to nation. Stocks in China fared better than in other regions, with additional signs of growth improvement from government stimulus, while fiscally-weaker Latin America and peripheral Europe lagged.

U.S. government bonds fared well as investor cash flows moved away from risk, with long treasuries up more than a percent for the week. Investment-grade corporates were largely flat, while high yield lost several percent. Also as expected, foreign developed market sovereign government bonds fared well, while emerging market debt pulled back.

Commodity indexes fell generally, as sharp declines in energy were offset by gains in precious metals, and little change in industrial metals or agriculture. The price of crude oil fell by over -8% to just above $36/barrel, in keeping with other risk assets.

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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