Markets, Economy

Weekly Kickstart (05/04/2020-05/08/2020)

5/4/20 8:00 AM

iStock-626627280.jpgStocks continued lower last week, as the S&P 500 fell by 0.21 percent to 2,830.71. That left the benchmark index down 12.38 percent 2020-to-date, but still 26.52 percent above the March panic low (closing basis). Equities actually started off last week on a positive note thanks in part to a stabilization in the price of crude oil and another encouraging Remdesivir clinical trial, but the bears eventually regained control. Some of this might have simply been reactionary algorithmic selling that helped further chip away at the “overbought” conditions highlighted in prior Kickstarts, while other potential excuses for the reversal include profit-taking, end-of-month rebalancing, disappointing earnings reports, and concerns about another escalation in trade tensions with China. Regardless, the S&P 500 still managed to end the month of April up 12.68 percent, the largest increase since 1987 and a welcome reprieve following the index’s 12.51 percent decline in March.


This performance juxtaposition is another example of how the biggest rallies frequently occur in close proximity to the most severe selloffs, and why “time in the market” can often be more important than “timing the market.” As for what to expect going forward, the last time the S&P 500 experienced back-to-back months of negative then positive double-digit moves was the fall of 1974, which also coincided with the bottom of a bear market. More generally, in the past when the S&P 500 has gained at least 10 percent in a single month, forward returns over the following 3-12 months have been overwhelmingly positive. Average performance during the first month after a 10+ percent gain, though, has been at best mixed, and similar choppiness here would not be too surprising considering how much uncertainty still surrounds the coronavirus. Moreover, a lot of data about how the trial economic re-openings have fared will start to be released in May, and equities could easily “overreact” (higher and lower) to every incoming headline. Regular investors may therefore want to continue to use rallies as opportunities 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 home values rose, mortgage (purchase) applications jumped, construction spending unexpectedly increased, household inflation pressures remained nonexistent, and a key gauge of Americans’ optimism about the future improved. As for the negatives, the nation’s trade deficit (in goods) widened, pending home sales declined, manufacturing activity contracted, personal income and outlays decreased, consumers’ confidence in current economic conditions deteriorated, U.S. gross domestic product (GDP) fell for the first time since 2014, and millions of Americans continued to make first-time claims for unemployment benefits (although this metric has also fallen for four weeks in a row). This week the pace of economic data slows down but there are still a few important reports on credit, service sector activity, productivity, and employment scheduled to be released, including the potentially market-moving April job report from the U.S. Labor Department due out on Friday.


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Sources: Econoday, FRBSL

Post author: Charles Couch