Market Update – May 16, 2020

Stock markets retreated this week, taking a break from their sharp recovery. Additional bad economic and unemployment data – combined with the concern that stocks may have moved too far too fast – was enough to send stock prices lower. For the week, the S&P 500 Index was down 2.3% and the Dow Jones Industrial Average declined 2.7%. Since March lows, the S&P has gained 30.6% while the Dow has advanced 30.0%.

After an 8.7% drop in March, retail sales fell an additional 16.4% in April. Barring a significant second wave of COVID-19 infections, April will hopefully be the low point as measured consumer demand returns with business reopenings. Nearly three million people filed for first-time unemployment claims, a lower total than in previous weeks. Over the past two months, an astounding 36.5 million total unemployment claims have been registered. As part of this process, the Bureau of Labor asks unemployed individuals to characterize their situation; on a positive note, 78% currently see their job loss as temporary rather than permanent. This seems to indicate that a large portion of job losses could be reversed relatively quickly with safe reopening efforts.

To that end, two-thirds of states have reopened in some form – with additional states slated to join before May ends. As our nation begins the long road back to normal, we continue to analyze key data (such as hotel occupancy rates, gasoline usage, and TSA screening numbers) for clues to how the recovery is progressing. Of course, the greatest threat remains the risk of a spike in coronavirus infection rates that would slow down or halt reopening efforts.

Federal Reserve Chairman Jerome Powell reiterated the commitment to do whatever is necessary to support the recovery, even as he cautioned that we have a long way to go. He rejected the notion of negative interest rates as a matter of Fed policy, while signaling continued support for asset purchases to help stabilize bond markets. The Fed purchased their first round of corporate bond ETFs this week, adding to their existing stockpile of Treasuries and mortgage-backed securities. Our lineup of core bond funds have responded to these developments to post positive year-to-date results and continue to provide necessary diversification benefits.

Debate on another round of fiscal relief began, as the House proposed a fresh $3 trillion package. Both the Senate and the White House signaled that they would not support it as written, preferring to assess how effectively the trillions already committed are cascading through the economy. While another relief package is still probable before the pandemic ends, the size and scope is very much uncertain.

As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.