The market rebound continued last week, as the S&P 500 rose by 3.04 percent to 2,874.56. That left the benchmark index down only 11.03 percent 2020-to-date, and 15.11 percent below the record close hit just two months ago. Most of the gains occurred on Friday following news from Gilead about the effectiveness of a potential COVID-19 treatment. It is of course far too early to know if this particular antiviral will actually become the first FDA-approved treatment against the coronavirus, but the encouraging clinical trials should still serve as a reminder that medical researchers across the globe are making progress every day towards treatments and vaccines. Prior to the Remdesivir news, equities struggled to hold onto gains last week, not surprising given how sharp the rebound off the March lows had already been. Additional selling pressure resulted from the earlier bounce in crude oil completely reversing and dragging down the share prices of many energy and mining companies. Clearly traders believe it will take more than production cuts to stabilize the price of oil, i.e. people back on the road.
Moreover, May could be an important month for the markets because several states are expected to start partially lifting their shelter-in-place orders. All eyes will be on how the COVID-19 infection curves respond to the regional re-openings, and any move in the wrong direction, even if transitory, could be poorly received by the markets. Fifty-seven percent of institutional investors in a new Bank of America Merrill Lynch survey similarly said that they believe a “COVID-19 second wave” is the biggest tail risk facing the markets currently, and 22 percent see the economic recovery following a “W-shaped” path. Positioning confirms such pessimism, with reported equity holdings now at the lowest level since March 2009, and cash allocations at the highest level since 9/11. Contrarians will naturally point to such figures as a reason to believe this rally has room to run, but the uncertainty still surrounding the economic re-openings, the Q1 earnings season, and many other issues means that volatility will likely not be going away anytime soon. Regular investors unsure how to navigate this environment may therefore want to use the latest run-up in stock prices as another opportunity to work with a professional financial advisor and make sure their positioning is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the only positive was that trade-related inflation pressures reversed. As for the negatives, measures of home-purchase applications, housing starts, building authorizations, homebuilder confidence, industrial production, capacity utilization, manufacturing, retail sales, and employment all deteriorated significantly due to the nationwide shelter-in-place orders. This week the pace of economic data remains slow but there are still a few important reports on housing, factory output, business activity, and consumers scheduled to be released.
What To Watch:
- Chicago Fed National Activity Index 8:30 AM ET
- Existing Home Sales 10:00 AM ET
- MBA Mortgage Applications 7:00 AM ET
- FHFA House Price Index 9:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- Jobless Claims 8:30 AM ET
- PMI Composite Flash 9:45 AM ET
- New Home Sales 10:00 AM ET
- EIA Natural Gas Report 10:30 AM ET
- Kansas City Fed Manufacturing Index 11:00 AM ET
- 2-Yr Note Announcement 11:00 AM ET
- 5-Yr Note Announcement 11:00 AM ET
- 7-Yr Note Announcement 11:00 AM ET
- 5-Yr TIPS Auction 1:00 PM ET
- Fed Balance Sheet 4:30 PM ET
Sources: Econoday, BofAML, FRBSL
Post author: Charles Couch