Market Update – June 20, 2020The tug-of-war between promising economic data and the ongoing threats to recovery continues. Improving retail sales and a potential thaw in U.S. – China trade relations helped lift stocks, even as Covid-19 cases continued to increase with the broader reopening.
For the week, the S&P 500 Index rose 1.9% while the Dow Jones Industrial Average gained 1.0%. For the year, the S&P is down 4.1% while the Dow has lost 9.4%. The biggest catalyst for market gains this week was a much-better-than-expected retail sales report, highlighted by an 18% increase in May (versus the projected 8%). It is important to remember that markets often respond to how numbers appear relative to expectations – increasing the importance of forecasting. This is an extremely challenging time for economists (and epidemiologists) to project the future – so interpreting the importance of any economic data must be viewed through that prism.
Initial unemployment claims were 1.5 million, down slightly from the prior week. Continuing claims fell slightly to 20.5 million. Although most economists predicted that the unemployment figures would fall more significantly, the continued downward path is promising. A thawing in the trade conflict between the U.S. and China emerged on Friday, as reports indicated that China will ramp up agriculture purchases in order to comply with the terms of the phase one trade agreement.
But a range of threats to economic recovery still remain. The increasing coronavirus case numbers in some of the first states to reopen is of foremost concern. As of this writing, hospitalization capacity is sufficient and ICU utilization has not approached critical levels in these areas, but vigilance in analyzing health data will remain paramount. Additionally, the uncertainty of future corporate earnings, the results of the U.S. fall election, the timing and effectiveness of a potential vaccine, and possible Congressional squabbling over an additional fiscal relief bill could all negatively affect markets.
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As always, please contact us with any questions about the economy and your financial plan.