Stocks rose sharply for the week, continuing the market’s climb from March lows. Surprisingly upbeat employment data indicated that displaced workers are being rehired and the economic recovery from the shutdown may be progressing faster than anticipated. Even as the positive news buoys hope that the worst of the economic effects are in the rearview mirror, we continue to analyze potential threats to a sustained rebound.
For the week, the S&P 500 Index was up 4.9% while the Dow Jones Industrial Average gained 6.8%. Year to date, the S&P is now down only 1.1% while the Dow has lost just 5.0%. In light of everything that our society has faced recently, it’s hard to believe that we have just experienced the best 50-day rally in S&P 500 history and that the NASDAQ Index reached a new record high during Friday’s trading. Broad participation across market sectors has driven the advance, as 95% of S&P 500 stocks are trading above their 50-day moving average technical indicator. Market leadership has now passed to traditional cyclical sectors (e.g. financial and industrial stocks) – a strong signal that the business cycle recovery has begun.
The May employment report released on Friday by the Bureau of Labor Statistics far exceeded consensus expectations. Payrolls grew by 2.5 million workers, and the unemployment rate declined to 13.3% from April’s 14.7%. (These results were drastically different from projections of further job losses and expectations of an unemployment rate spike towards 20%.) Additionally, the number of weekly first-time claims for unemployment benefits continued to decline from prior highs.
Although the economic news is encouraging, it is still too early to disregard lingering threats. We continue to be focused on potential second waves of coronavirus infections in the U.S. and abroad, unrest in American cities, ongoing tension between the U.S. and China, a U.S. election season that promises to be extremely contentious, and the uncertainty surrounding corporate earnings over the next 18 months. Any of these issues could prove to be potential impediments to future investment performance.
For more expert financial insights, we hosted a webinar this week with Jeff Kleintop, Chief Global Investment Strategist for Charles Schwab. Click here to view the webinar. Top takeaways include:
- Early data from Asia and Europe is promising for a strong recovery
- Global stock markets are moving higher with strong correlation – portending a potential return of global growth
- Portfolio diversification is key, and investors should aim to maintain exposure across and within asset classes. Early recovery trends suggest that we may be at an inflection point, with value stocks poised to outperform growth and international stocks poised to outperform domestic stocks
We remain steadfast in our commitment to help you navigate through the pandemic and move forward on the road to recovery. We have helped our clients by serving as a steady voice and trusted advisor, rebalancing portfolios to take advantage of buying opportunities, and conducting tax loss selling when appropriate. We continue to message the importance of sticking to your financial plan during challenging times. As always, please contact us with any questions about the economy, your portfolio or financial plan.