Markets, Economy

Weekly Kickstart (05/18/2020-05/22/2020)

5/18/20 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 2.26 percent to 2,863.70. That left the benchmark index down 11.36 percent 2020-to-date, but still 27.99 percent above the March panic low (closing basis). The pullback was not surprising and many of the catalysts for last week’s equities selloff were even outlined in the prior Kickstart. The bigger takeaway from this price action, though, is that the fight against the coronavirus in America has clearly been going well recently. Indeed, intraday market volatility appears to increasingly be driven less by COVID-19 headlines and instead more by the passing of the next stimulus and a possible re-escalation in U.S.-China trade tensions, among other things. Put simply, investors being able to focus more on non-coronavirus news is another example of how much conditions have improved. However, none of this means that it is time to declare victory over the pandemic or related economic downturn.

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Federal Reserve chair Jerome Powell echoed such sentiment in a gloomy (by design) speech last week intended to signal to lawmakers in Congress that more fiscal support is needed, and that the risk from trying to do less now is having to do significantly more later. Although some may challenge that viewpoint, it is highly likely that the sharp rebound in the stock market off the March low was not only helped by the passage of the CARES Act but also the anticipation that additional rounds of fiscal support would follow. Moreover, even if the consensus is that another relief package is a “sure thing,” the headline risk for equities around this issue is likely to remain elevated until something is actually signed into law, just as we saw with the passage of the CARES Act and the additional funding for the Paycheck Protection Program. Add to all of this the uncertainty still surrounding the containment of the coronavirus, U.S.-China trade relations, corporate earnings, and the November elections, and there are clearly plenty of potential reasons for stocks to continue to chop around in a very wide range in the near-term. Many 401(k) investors can fortunately look past these day-to-day swings in stock prices and stay focused on the long-term objective of preparing for retirement through years of routine, tax-advantaged plan contributions, but it can also be beneficial to use rallies as opportunities to review your portfolio and make sure it is properly aligned with your risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage purchase applications rose for the fourth consecutive week, regional manufacturing activity stabilized, consumer confidence firmed, and both household and wholesale inflation pressures remained nonexistent. As for the negatives, industrial production collapsed, capacity utilization declined, retail sales plunged, small business owner confidence deteriorated (but optimism about the future improved markedly), total job openings fell, and millions of Americans continued to make first-time claims for unemployment benefits (although this metric has also fallen for six weeks in a row). This week the pace of economic data slows down but there are still a few important reports on housing, manufacturing, and employment scheduled to be released, along with the potentially market-moving minutes from the last FOMC meeting due out on Wednesday.

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What To Watch:

Monday

Tuesday

Wednesday

Thursday

Friday

  • State Employment and Unemployment Summary 10:00 AM ET
  • Baker-Hughes Rig Count 1:00 PM ET
  • SIFMA Rec. Early Close 2:00 ET
 

 

Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures