The Week On Wall Street
Upbeat comments by the Federal Reserve Chairman and more signs of an economic turnaround combined to help fuel a powerful rally in the stock market last week. The Dow Jones Industrial Average rose 3.29%, while the Standard & Poor’s 500 advanced 3.20%. The Nasdaq Composite index climbed 3.44% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 3.87%.
Stocks Cheer Fed Support
The markets surged higher to open the week, buoyed by a Sunday night “60 Minutes” interview with Fed Chair Jerome Powell, who said that the Federal Reserve would do everything necessary to support economic recovery. Rising oil prices and more states lifting restrictions added to the overall improving investor outlook.
After a day digesting those gains, stocks moved another leg higher on strong earnings from big retailers and growing optimism over the global economic recovery. Stocks drifted in the final two days of trading as investors worried about heightening tensions between the U.S. and China.
Different Views on the Economic Recovery
Treasury Secretary Steven Mnuchin and Fed Chair Powell testified last week before the Senate Banking Committee, providing Senators with two different views of the nation’s economic outlook.
Secretary Mnuchin suggested a wait-and-see approach before moving ahead with additional fiscal measures. He wants to pause new spending in order to first assess the impact of the already-approved stimulus program. He believes that the economy will experience a “V-shaped” recovery.
Fed Chair Powell, on the other hand, expressed worries that waiting too long for additional fiscal measures may hamper the fragile economic recovery. It was the third time in a week that the Fed Chair suggested more federal spending is needed to help the economic recovery.
THIS WEEK: KEY ECONOMIC DATA
Tuesday: Consumer Confidence. New Home Sales.
Thursday: Jobless Claims. Durable Goods Orders. Gross Domestic Product (GDP).
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Autozone (AZO)
Wednesday: HP (HPQ), Workday (WDAY), Autodesk (ADSK)
Thursday: Salesforce.com (CRM), Costco (COST), Trip.com (TCOM), Okta (OKTA), Dollar General (DG), Dell Technologies (DELL), VMware (VMW)
Final Thoughts
One of the challenges of assessing the U.S. economy using certain government reports, like the consumer price index or the employment report, is that they are considered “lag indicators.” Lag indicators provide good insight into where we’ve been but are less helpful in looking at the current state of economic activity.
Looking at some “real-time” data can help investors better assess the here-and-now. For example, gasoline deliveries are trending higher, consumer confidence appears to have stabilized, and airlines are seeing more bookings. Even the supply of toilet paper seems less of a concern these days, with Google searches falling to near normal levels.
There is a palpable difference between the stock market and the economy right now, the market tends to look forward from where we are today. Today, earnings have slumped and many have lost their jobs. The market is anticipating people going back to work and the economy getting back on track though it may look a little different than it did before COVID. Then, there is the Fed. The Federal Reserve is pumping so much money and liquidity into this economy that the market has taken notice and wants to move higher.
We mentioned in one of our last commentaries that we follow a process. Right now, the process says you have to own stocks. That could change again at some point and while we would expect some further back and forth in this market the bias is most definitely to the upside. The saying goes "don't fight the Fed," meaning, when the Fed is pouring money into the economy it hasn't been wise to bet against the market going higher. Of course, anything can happen as we move forward. These are unprecedented times and the Coronavirus is anything but predictable. There will certainly be challenges ahead and we are in the midst of an election year, so it is important to maintain the appropriate mix of investments that matches your tolerance for risk and volatility.
We continue to monitor the situation closely and are always here to talk.
Kind regards, 
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May 26, 2020
