Best Month Since 1987

 

MARKETS MIXED AS STATES BEGIN TO OPEN UP AND APRIL RECORDS ITS BEST MONTHLY GAIN SINCE 1987

Weekly Market Update — May 4, 2020

  • The mood on Wall Street was more positive this week, as 18 states announced that they would reopen as of May 1st, pushing the markets up through the middle of the week, before retreating to end the week mixed
  • Small-caps led the way, as the Russell 2000 Index moved up 2.2%, NASDAQ dropped 0.3% and both the S&P 500 and DJIA retreated 0.2%
  • Investors were flooded with awful (and expected) economic data all week, including weak manufacturing data, massive jobless claims, GDP contraction and a drop in personal spending
  • While jobless claims were 3.8 million for the week ending April 25th, it was below expectations by over 600,000 and the most recent trend appears to be improving
  • The Fed unanimously voted to keep the Fed Funds rate target at 0.00-0.25% and hinted that rates might stay there for a while
  • Of the 11 S&P 500 sectors, more than half-closed higher and less than half-closed the week lower
  • The Energy sector was the best performer, gaining almost 3% and the Utility sector was the worst performer, losing over 4%
  • Volatility increased as the week wore on, with the VIX coming to rest at about 37, after hitting 30 on Wednesday
  • U.S. Treasuries were close to unchanged as the 2–year yield ended the week at 0.20% and the 10–year came in at 0.62%
  • The U.S. Dollar Index declined  1.3%
Weekly Market Performance

Close Week YTD
DJIA 23,724 -0.2% -16.9%
S&P 500 2,831 -0.2% -12.4%
NASDAQ 8,605 -0.3% -4.1%
Russell 2000 1,260 2.2% -24.4%
MSCI EAFE 1,636 2.9% -19.7%
*Bond Index 2,335.85 0.03% 4.98%
10-Year Treasury Yield 0.62% 0.0% -1.3%

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Best Month Since 1987

Even though the S&P 500 was down 0.2% for the last week of the month, it was still its best monthly performance since 1987. In fact, according to Factset:

  • The DJIA is up 28% from its March 23rd low;
  • The S&P 500 is up 27% from its low; and
  • NASDAQ is up 26% from its low.

\"Since

The stock market generally looks forward and although economic news this week was decidedly negative, the mood was more positive as new COVID-19 cases appear to be slowing and the worst might be behind us as local and state economies begin to reopen for business.

While volatility increased on the week, the past month has witnessed a steady decline as the Fear and Greed Index – the VIX – started the month north of 50 and ended around 37. And although Wall Street hopes that volatility might continue its downward trajectory, as economies around the nation and around the world begin to reopen, volatility is likely to remain elevated.

Manufacturing and Exports Drop

The ISM Manufacturing index for April came in at 41.5%, which was the lowest level since April 2009. The data showed a significant increase for supplier deliveries, but it is due to supply chain disruptions and is not a positive sign. Further, while the index for inventories increased too, that was due to weak demand resulting in inventories staying in warehouses longer, another not–so–good sign.

\"DROP\"

U.S. exports fell 6.7% in March compared to February and U.S. imports were down 2.4%. The largest contributor to the lower export number was automobiles (due to COVID–19 shutdowns), as auto exports were down a whopping 17.8%. Consumer goods and capital goods were down 5% and 4.3%, respectively. The automobile category was also the largest contributor to the lower import number, as auto imports were off 9%.

Consumer Confidence Plunges

Consumer confidence spiraled down as the Conference Board Consumer Confidence Index deteriorated in April, following a sharp decline in March. The Index now stands at 86.9 (1985=100), down from 118.8 in March.

\"Consumer

Further, the Conference Board reported that:

  • The Present Situation Index – based on consumers\’ assessment of current business and labor market conditions also declined considerably, from 166.7 to 76.4 – the largest drop on record.
  • The Expectations Index – based on consumers\’ short–term outlook for income, business and labor market conditions v improved from 86.8 in March to 93.8 this month.

Gross Domestic Product Drops

The Bureau of Economic Analysis reported that real gross domestic product decreased at an annual rate of 4.8% in the first quarter of 2020 whereas real GDP increased 2.1% in the 4th quarter of 2019.

\"GDP

The BEA was quick to point out that their data was incomplete and “subject to further revision” and indicated that another GDP number, based on more complete data, will be released on May 28th.

From the BEA\’s release:

“The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued “stay–at–home” orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending. The full economic effects of the COVID–19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”

The BEA\’s further reported that:

  • Personal income fell 2%
  • Real consumer spending fell 7.6%
  • Non-residential investment fell 8.6%

Jobless Claims Trending Down?

Jobless claims rose 3.8 million through April 25th and while the number is massive, it still represents the fourth straight weekly decline from the peak of 6.8 million jobless claims in late March.

\"Trending

From the beginning of the crisis in mid–March, jobless claims are now over 30 million, a staggering percentage given the total labor force is about 163 million.

A Busy Earnings Week

As of Friday, more than half of the companies in the S&P 500 have reported earnings results for the first quarter of 2020. From FactSet\’s release dated May 1st:

  • Looking at future quarters, analysts predict a (year–over–year) decline in earnings in the second quarter (–36.7%), third quarter (–20.1%), and fourth quarter (–9.4%) of 2020.
  • This week marked the first time the S&P 500 recorded a forward 12-month P/E ratio of 20.0 or higher since April of 2002.
  • The forward 12–month P/E ratio is 20.3, which is above the five-year average and above the 10–year average.

Next week, investors hear from 148 of the S&P 500 companies.

Sources

dol.gov;bea.gov;factset.com;conference-board.org;instituteforsupplymanagement.orgstandardandpoors.com;nyse.com;msci.com;nasdaq.comdowjones.commorningstar.comfidelity.combloomberg.com

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top
Call Now Button