Monthly Archives: May 2020
Small and Medium Businesses Return to Forefront — Outperform Larger Counterparts
Market Data as of Week Ending 05/22/2020 unless noted otherwise.
EQUITIES
Stocks advanced last week as investors responded to a combination of improving economic data and easing financial conditions. Small and medium sized businesses returned to the forefront and significantly outperformed their larger counterparts for the week. Companies in the S&P 500 are expected to finish the first quarter with an earnings decline of nearly 15% and will mark the largest year-over-year decline in earnings reported by the index since the third quarter of 2009 (-15.7%). Developed foreign stocks in Europe and Asia also advanced during the week, but Emerging Market stocks lagged developed foreign markets.
BONDS
U.S. Treasury yields rose for the week as investors clearly pivoted back toward higher risk assets. Investment grade corporate bonds outperformed government bonds while high yield was the top performing asset class. Corporate bonds are benefiting from a new source of demand as the Federal Reserve began purchasing U.S. corporate bond ETFs on May 12th. Investment grade corporate bonds are yielding more than 2.5% and high yield corporate bonds are yielding more than 7%.
MACROECONOMIC DATA
Jobless claims rose by more than 2 million last week, bringing the total to nearly 39 million Americans who have filed initial claims for unemployment insurance since the COVID-19 crisis began. The price of oil has rebounded and is back above $30/barrel as the supply overhang appears to have peaked and demand has begun to normalize. China announced that it will abandon economic growth targets, but that was overshadowed by news that the country will force national security legislation on Hong Kong.
U.S. Treasury Yields Declined for the Week as Investors Demonstrated Preference for High Quality Over Risk Assets
Market Data as of Week Ending 05/15/2020 unless noted otherwise.
EQUITIES
Stocks retreated as investors were presented with economic data and warnings of further weakness ahead. Following three consecutive weeks of out-performance for small and medium sized businesses, they significantly lagged their larger counterparts for the week. S&P 500 companies have reported an earnings decline of more than 10% for the first quarter and analysts expect a decline of nearly 20% in calendar year 2020. Developed foreign stocks in Europe and Asia also declined during the week, but Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields declined for the week as investors demonstrated preference for high quality over risk assets. Investment grade corporate bonds outperformed both government and high yield. Investor demand for a combination of quality and yield continues to build. Investment grade corporate bonds are yielding more than 2.5% and high yield corporate bonds are yielding more than 7.5%.
MACROECONOMIC DATA
Jobless claims rose by 3 million last week, bringing the total to more than 36 million Americans who have filed initial claims for unemployment insurance since the COVID-19 crisis began. Not surprisingly, U.S. retail sales dropped 16% in April to a new record as the pandemic upended the economy. However, U.S. consumer sentiment posted a surprise increase as the University of Michigan’s preliminary index rose nearly 2 points from an eight-year low to 73.7.
Market Prices Recover Even as Unemployment Hits 70 Year High
Market Data as of Week Ending 05/08/2020 unless noted otherwise.
EQUITIES
Stock prices recovered after a rough start to the month of May. Small and medium sized businesses outperformed their larger counterparts for the third consecutive week. Investors responded favorably to reports that treatments might bring an eventual end to the health and economic crisis. For the first quarter, S&P 500 companies have reported an earnings decline of more than 10% and analysts expect a decline of nearly 20% for calendar year 2020. Developed foreign stocks in Europe and Asia posted much more modest gains for the week and Emerging Market stocks declined, underperforming developed foreign markets.
BONDS
U.S. Treasury yields were mixed for the week as short-term bond yields declined while long-term yields increased. Below investment grade corporate bonds outperformed as investor demand continues to build for higher yielding credit. Investment grade corporate bonds are yielding more than 2.5% and high yield corporate bonds are yielding more than 7.5%.
MACROECONOMIC DATA
The official U.S. employment report was released for April and the unemployment rate increased to 14.7%, the highest in more than 70 years. Some positive news in the report was that the vast majority of those laid off told surveyors that they expected to be rehired within six months. However, expanded unemployment benefits through the summer could make unemployment a more financially viable option than going back to work for lower wage earners. Signs of fragmentation emerged in Europe when the German Constitutional Court ruled that parts of the European Central Bank’s (ECB) bond-buying program were unconstitutional.
As Jobless Claims hit 30 Million, S&P has Best Month Since 1987
Market Data as of Week Ending 05/01/2020 unless noted otherwise.
EQUITIES
Stock prices were mixed for the week as local and state governments across the U.S. begin to relax social distancing and reopen parts of their economies. Small and medium sized businesses outperformed their larger counterparts for the second consecutive week. The S&P 500 Index gained 13% in the month of April which its was best monthly return since 1987. Developed foreign stocks in Europe and Asia posted strong gains for the week and Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields were also mixed for the week as short-term bond yields declined while long-term yields increased. Corporate bonds, including below investment grade, outperformed as investor demand increased for higher yielding credit. Investment grade corporate bonds are yielding more than 2.5% and high yield corporate bonds are yielding more than 8%.
MACROECONOMIC DATA
Jobless claims rose 3.8 million last week, bringing the total to more than 30 million Americans (approximately 18% of the U.S. working population) who have filed initial claims for unemployment insurance since the COVID-19 crisis began. In an advanced estimate, the U.S. reported that gross domestic product (GDP) decreased at an annual rate of 4.8% in the first quarter of 2020. Not surprisingly, the largest detractor was a drop in consumption of -7.6%. On a positive note, China has reported that Wuhan, where the pandemic began, has no remaining cases of COVID-19 in its city hospitals.