The Week on Wall Street
Stocks moved higher last week on news of more Federal Reserve market support and diminished concerns that new COVID-19 cases might lead to another economic shutdown. The Dow Jones Industrial Average rose 1.04%, while the Standard & Poor’s 500 gained 1.86%. The Nasdaq Composite Index jumped 3.73% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, increased 1.88%.
News on Monday that the Fed would be expanding its bond-buying program to include the debt of individual companies sparked a sharp jump in stocks. The momentum gained through the week as investors focused on positive economic signals, especially with retail sales. A midweek report of an effective COVID-19 treatment for critically ill patients boosted investor optimism. Market sentiment also was helped by talk of more fiscal stimulus and a report that China would be moving ahead with agricultural purchases to comply with phase one of the trade deal, easing concerns over growing friction in the U.S.-China relationship.
Mixed Economic Data
Last week’s economic data illustrated the uneven nature of the nation’s nascent economic recovery. Retail sales, which were up by 17.7% in May, reflected a strong, encouraging rebound in the U.S. consumer. Consumer spending was particularly strong in clothing, furniture, sporting goods, and autos. But industrial production (up by only 1.4%) and new housing starts (ahead by just 4.3%) showed tepid rebounds, indicating that recovery has yet to reach all corners of the American economy. Jobless claims posted their best number since mid-March (1.5 million) but remained high by historical standards.
THIS WEEK: KEY ECONOMIC DATA
Monday: Existing Home Sales.
Tuesday: New Home Sales.
Thursday: Durable Goods Orders. Gross Domestic Product (GDP). Jobless Claims.
Friday: Consumer Sentiment.
During the economic shut-down, most companies got a pass on earnings, guidance, and just about anything other than a discussion about whether or not they would survive. Companies that were well positioned for work-from-home scenarios benefited. Others, not so much.
So here we are. The economy is re-opening… likely regardless of what happens with the virus. The American public is divided. Camps have been chosen. Resolve stiffened. And the markets play on…. History has shown us that markets tend to think a quarter at a time. Long-term investors ride things out longer. But professional money managers, while sometimes long-term thinkers, will tweak and rebalance in the shorter term (some shorter than others).
When everything hit the proverbial fan, quarterly data went with it. It left investors with little more than educated guesses as to how things would play out in the future. Well, the collective ‘pass’ given to companies during the last quarter — that is to say, a pass on giving much data or guidance — is likely coming to an end. It’s been 13 weeks — one quarter — and it’s time to start reckoning with the world as it now exists. Will companies thrive, survive, or otherwise in the post-Covid world? So, as Spring yields to summer, and Q2 passes the baton to Q3, it’s probable data will come back into vogue. The question buried in the data is, when will valuations come back into vogue as well?
The Fed’s money creation and bond purchasing has stabilized the fixed income market to a great extent. But it’s left risk-equivalent yields all over the board. Sooner or later, markets are bound to address this.
So, enjoy this week. The pattern is sideways. The 200-day moving average is still holding at support at 3018 for the S&P500. The big fat number 3000 has held up will just below that. Given the nature of this week — few earnings, still too far out for election to be relevant, and the end of the forgotten data quarter — things appear to be relatively benign this week.