Markets, Economy

Weekly Kickstart (04/27/2020-05/01/2020)

4/27/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 1.32 percent to 2,836.74. That left the benchmark index down 12.20 percent 2020-to-date, but still 26.79 percent above the March panic low (closing basis). Any near-term pullback remains unsurprising given how sharp the rebound in the market has been, but last week’s selling did help work off some of the “overbought” conditions highlighted in the prior Kickstart. Unprecedented oil market volatility was the main driver for last week’s equities selloff. Similar sound and fury in the crude space could occur when the June futures contract settles if storage capacity challenges persist, but a key catalyst for higher prices will arrive when the global lockdowns are eventually lifted and demand can start to normalize. Perhaps the bigger takeaway is that the stock market being able to spend most of last week fixated on the price of oil instead of the coronavirus is another sign of just how much conditions have improved recently in America. Indeed, a combination of flattening infection curves, encouraging antibody tests, and more evidence that summer weather (sunlight, temperature, and humidity) is detrimental to COVID-19 helped raise the general sense of optimism about our nation’s ability to overcome this crisis.


Several state governors have even announced that they are starting to gradually re-open their local economies, and more states are expected to do the same in May. Critics were quick to suggest that lifting the lockdowns could cause a spike in infections, but this is actually a risk government officials are well aware of. Moreover, the hope is that increased availability and usage of masks and other PPE along with the numerous steps taken during the lockdown to shore up the nation’s healthcare system will allow hospitals to better absorb an uptick in infections without being overwhelmed. None of this means that the pandemic is over or that social distancing practices should be relaxed, but rather that there are a lot more reasons for cautious optimism than there were a month ago. Going forward, medical experts, government officials, and of course the markets will all be paying close attention to the COVID-19 testing and hospitalization statistics released in May and June to assess how successful the trial economic re-openings across the country have been. Since there are countless ways this situation can play out over the next few months, the tail risk for the markets will likely remain two-sided (higher and lower) for the time being. Any regular investors uncomfortable with the potential for another jump in volatility should consider using the latest run-up in stock prices as another opportunity to review their portfolio and make sure it 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 positives included that mortgage (purchase) applications rose, home values increased, and core capital expenditures, a key gauge of U.S. business investment, surprised to the upside. As for the negatives, measures of new home sales, manufacturing activity, joblessness, and consumer sentiment all continued to deteriorate due to the shelter-in-place orders. This week the pace of economic data picks up with several important reports on factory activity, construction spending, housing, consumers, employment, inflation, and U.S. gross domestic product (GDP) growth scheduled to be released, along with a potentially market-moving announcement on monetary policy from the Federal Open Market Committee (FOMC) on Wednesday.


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Sources: Econoday

Post author: Charles Couch