Market Update – May 30, 2020

Stocks rose again over the shortened holiday week, even as the ongoing U.S.–China conflict produced troubling news headlines, and civil unrest followed the tragic death of a Minnesota man in police custody. While the gradual worldwide economic reopening progressed, extensive debate over its proper pace and scope continued.

The S&P 500 Index was up 3.0%, while the Dow Jones Industrial Average gained 3.8%. From March lows, the S&P has risen 38.9% and the Dow has advanced 39.4%. Stock returns have been aided by the reopening, hopes for a vaccine before year-end, and worldwide central banks pledging additional money to combat the pandemic. Tempering these more positive developments, U.S. relations with China were further strained this week by mainland China’s government effort to impose more stringent security measures on Hong Kong. Both Hong Kong’s autonomy and status as a world financial center have been called into question, generating additional market uncertainty.

First-time claims for unemployment were 2.1 million, bringing the shutdown total to 40.8 million. However, continuing unemployment claims fell – suggesting that a notable number of workers have already been rehired by their previous employers or have found jobs elsewhere. April’s reported consumer spending fell a historic 13.6% during the height of the shutdown, but some early May indicators are signaling a partial recovery in goods and services purchases.

Small and mid-sized businesses continue to be challenged during the reopening, as they work through how to recall workers, cover overhead expenses, and manage cash flow while opening in a limited capacity. Businesses that took out PPP loans with the hope of having them forgiven have the added concern of ensuring that they are meeting all necessary federal government requirements.

Larger companies have taken advantage of the Federal Reserve’s pledge of support to bond markets and issued more than $1 trillion of new investment-grade bond offerings thus far in 2020. Firms are taking advantage of ultra-low rates to secure financing to help them meet continuing obligations and plan for expansion once the recovery is more well-established. The potential negative effects of this additional debt could surface if we have an extensive second wave of coronavirus infections and these companies struggle to make required capital and interest payments.

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.