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Market Commentary for the week ending May 9th, 2020

Summary

  • The tech-heavy NASDAQ Composite goes positive year-to-date while the S&P 500 and Dow Industrials remain meaningfully lower.
  • 2-Year U.S. Treasuries fell to a record low yield of 0.13% with investors expecting the Federal Reserve to hold interest rates low for an extended period of time.
  • The Employment Report showed a record number of job losses for a single month but was not as bad as expected.

 

The NASDAQ Composite Index Goes Positive Year-to-Date but…

The NASDAQ Composite, an index of mostly technology stocks, surged +6.0% this week putting it back in positive territory year-to-date less than 3 months since the coronavirus selloff began. This is certainly good news for investors and a positive sign for the markets but it does not necessarily provide a full picture of the overall market today.

All stocks year-to-date performance

Source: www.YCharts.com; all stocks on the NYSE and NASDAQ Exchanges

As the above graph shows, although the NASDAQ Composite Index has recovered all of its losses for the year, only 19.0% of all stocks are higher for the year while 81.0% remain lower. This is explained by the fact that technology stocks, in particular large tech stocks that drive the majority of the performance of the NASDAQ Composite Index, are the only sector higher for the year as illustrated in the below graph. Every other sector remains lower with 3 of the 10 sectors still down -20% or more.

Industry sectors year-to-date

Source: www.YCharts.com

Interesting Numbers of the Week

Tequila Exports

Mexico reported a 43% surge in the export of tequila in March with the owner of brand Jose Cuervo being a notable standout.

Tequila Exports: +43%

Peloton Workouts

Fitness company Peloton, the popular maker of stationary bikes, reported users did a combined 44 million workouts in the first quarter compared to just 24 million in the previous quarter.

Peloton Workouts: 44 Million

This Week’s Performance Highlights

Market Indexes week ending May 8, 2020

Source: www.YCharts.com

  • Stocks rallied around the world with investor greed, and likely a fear of missing out on the rally, wins out over the fear of losses. Large U.S. stocks, as measured by the S&P 500, +3.4% while the Dow Jones Industrials lagged behind up +2.6% and the NASDAQ, as noted above, jumped +6.0%.
  • Small U.S. stocks, generally considered among the riskier, did extremely well jumping +5.8% for the week but are still lower for the year by -19.8% while large stocks are down just -8.6%. This is a generally good sign suggesting investors are less concerned about the long-term economic impact on these smaller companies.
  • International stocks were higher as well with developed country stocks up +2.7%. Among the developed regions, Australia’s market did the best gaining +4.5% and European markets lagged behind but were still higher by +1.7%.
  • Emerging markets posted a strong performance of +4.3% for the week but are still down -17.9% for 2020. A couple of standout winners this week were Mexico gaining +9.8% and China up +4.8%.
  • Real Estate stocks were higher with the overall market but only gained +1.4% as questions persist about the coronavirus’s long-term impact on this sector as discussed in last week’s blog.
  • Gold inched higher by +0.4% but this safe-haven has seen less attention since the market began its recover in late March.
  • The price of oil surged +24.6% adding to its gains after collapsing just 3 weeks ago. This helped push the commodity index higher this week by +7.2% but is still down -43.9% for the year.
  • Overall bond prices moved lower down -0.4% for the week. U.S. Treasuries though generally moved higher pushing the yield of 2-Year Treasuries to a record low 0.125%. Investors are clearly expecting the Federal Reserve to keep interest rates near 0% for an extended period of time or even possibly drop them below zero.

2 year US Treasury Yield

Source: www.YCharts.com

Economic Indicators

The coronavirus economic shutdown cost 20.5 million people their jobs during the month of April according the month’s employment report. Although this was fewer job losses than economists had predicted it did drive the unemployment rate to a post World War Two high of 14.7%.

According to the Bureau of Labor Statistics, the unemployment rate is about 5% higher when including those who have been furloughed and even higher when including discouraged job seekers and others on the fringe of the labor market. A measure of unemployment called U6, measuring both the unemployed AND underemployed, rose to a record high of 23%. Although the same stats were not kept during the Great Depression, historians suggest unemployment topped at about 25%.

As expected the worst hit industries were leisure and hospitality accounting for more than one-third of the total losses. No industry was spared though with big losses for education and health services as well as professional and business services. A +4.7% jump in hourly earnings suggests there have been more job losses for lower income earnings than higher earnings.

The monthly employment report is a bit of a lagging indicator. The May report will likely show many millions more losing their jobs.

In a separate report, 3.2 million more people filed initial jobless claims requesting unemployment benefits. There have not been more than 33 million new claims in 7 weeks.

Factory Orders for March, before the economic shutdown was fully in effect, fell -10.3%. Durable goods, those lasting for a longer period of time, experienced the biggest downturn. It’s expected the April numbers will be worse.

The Institute for Supply Management’s survey of non-manufacturing companies plunged in April to a reading of 41.8% from 52.5% in March indicating the deep pain being experienced in the services industry. Any reading above 50% indicates growth and a reading below 50% signals contraction. This month’s reading not only brings it down to 2008 levels but also breaks a 112 month streak of expansion.

Upcoming Economic Reports

  • Consumer Price Index (CPI)
  • Producer Price Index (PPI)
  • Initial Jobless Claims
  • Retails Sales
  • Industrial Productions
  • Consumer Sentiment Index

Contact Mark A. Patton :