May 4, 2020

Weekly Market Commentary April 27th to May 1st 2020

States across the U.S. began to relax their stay-at-home measures this week allowing many businesses to re-open. Positive news regarding trials of a Covid-19 treatment drug from Gilead gave hope to investors but a higher-than-expected jobless claim rate sent stocks tumbling in the later part of the week. Despite losses on Thursday and Friday, all three indices finished flat for the week. The S&P 500 finished at 2,830, a change of -0.2%. The Nasdaq and DJIA finished at 8,604 and 23,723, respectively.

The FOMC met on Wednesday and kept the Fed Funds and Discount rates unchanged. Fed Chairman Powell noted the effects of Covid-19 with the following statement, “The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” The 10-Year US Treasury yield finished the week at 0.63%, not much of a change from last week.

Q1 GDP came in at -4.8%, a steeper decline than expected with consumer spending falling at a -7.6% pace. Weakness in spending was attributable to vehicles and services, namely food, accommodations and recreation. Personal income fell -2%. The saving rate jumped to 13.1%, indicating people are uncertain about future income. The March inflation reading fell 0.3% month-over-month bringing the year-over-year change in inflation to 1.3%, down from 1.8%. Core Personal Consumption Expenditures (PCE excluding energy and food) declined -0.1% bringing the year-over-year change to 1.6%, also down from 1.8%.

The Weekly Jobless Claims rose another 3.8 million, bringing the total to 30 million over the last 6 weeks. Consumer confidence dropped to a 6-year low of 86.9, by comparison, during the financial crisis of 2008, this measurement dipped into the 30s. Pending Home Sales declined sharply by 20.8% in March indicating Existing Home Sales will decline in April and May, the height of buying season. On the bright side, the purchase index of mortgage applications rose for the 2nd week in a row. PMI Manufacturing ended the month of April at 36.1, noting specific weakness in foreign orders. The ISM Manufacturing Index, which is a better measure of domestic manufacturing, came in at 41.5. Regional manufacturing surveys in Dallas and Richmond both fell sharply, as expected.

Looking ahead to next week, we will get a clearer picture of the employment situation. We will also be watching for any fallout from businesses reopening and social distancing restrictions being relaxed in certain states.