Market Update – May 23, 2020

Cautious optimism for economic recovery continued this week, as all fifty states have now reopened their economies in some fashion. Stocks rose sharply Monday on promising vaccine news and held on to most of those gains through the remainder of the week.

For the week, the S&P 500 Index was up 3.2% and the Dow Jones Industrial Average gained 3.3%. Year to date, the S&P has lost 8.5% while the Dow has declined 14.3%. Markets have rallied, even as many unknowns still challenge traditional stock analysis. There is no solid consensus for both GDP growth and corporate earnings, two of the most important factors in assessing stocks. Estimates vary widely on just how large the second quarter GDP contraction will be with over 40% of S&P 500 companies eliminating their forward earnings guidance due to the pandemic. Of course, uncertainty about a potential second wave of virus cases adds to the uncertainty.

So why are stock prices rising? Markets seem to be moving based on expectations that liquidity from central banks and government fiscal stimulus will cushion the significant economic blow and that a potential second wave of infections won’t cripple the health care system. Similar to what happened during the last recession, a large amount of money has flowed out of risky assets this year. It’s reasonable to expect that a sizeable portion of those funds will move back into stock markets once a larger percentage of investors are confident the worst is behind us.

The downward trend in first-time unemployment applications continued this week. 2.4 million claims were made, bringing the shutdown total to 38.6 million. As states continue to reopen more fully and people are called back to work, challenges for workers with children have surfaced. With schools and child-care centers still largely closed, finding a safe environment for kids during the workday provides another challenge to working parents.

We continue to analyze developments in the conflict between China and the U.S. and view this as a threat to recovery. The ongoing war of words regarding the origins of the virus continues unabated. This week’s announcement by China that they will impose new, more severe security laws on Hong Kong drew swift and strong criticism from both Congress and President Trump. While China has struggled economically within their reopening process, questions have been raised around their ability to live up to the terms of the “Phase One” trade agreement. Continuing military actions by China in the South China Sea against the U.S. have also increased tensions. While the chances of a full-scale military conflict is low, the potential emergence of a cold war can’t be discounted.

As global recovery takes shape, we are pleased to announce that Jeff Kleintop, Chief Global Investment Strategist with Charles Schwab will present an exclusive webinar for our clients on Wednesday, June 3 at noon ET. His insight is not to be missed. We will be emailing an invitation shortly to RSVP.

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