Weekly Market Update — May 25, 2020

Despite a torrent of negative economic news all week, especially within the housing sector, all of the major U.S. stock markets leaped forward and came to rest at levels not seen since early March The smaller-cap Russell 2000 Index skyrocketed 7.8%, followed by the tech-laden NASDAQ\’s gain of 3.4%, the DJIA\’s move of 3.3% and the S&P 500\’s gain of 3.2% The week started out on a positive note after it was reported that a COVID–19 vaccine candidate yielded positive Phase 1 clinical results Almost all of the 11 S&P 500 sectors were painted green on the week and 9 of the 11 jumped by more than 3%, led by Industrials (up 7.2%) and Energy (up 6.1%) The Health Care sector was the lone sector painted red, as it declined 0.8% The housing market received negative news all week, like housing starts, building permits, existing home sales and construction jobs all cratered Jobless claims decreased from the week before, but the total from the past 9 weeks stands at over 38 million Tensions between the U.S. and China spiked as President Trump ratcheted up his criticism of China\’s coronavirus actions, as well as its trade practices and human rights violations, worrying the market that the previously–agreed upon trade deal with China was in jeopardy Volatility, as measured by the VIX, stayed within a pretty consistent range all week, and was almost unchanged on the week Oil prices continued their march upwards, rising over 13% on the week, which is on the heels of last week\’s 18% gain, pushing the price north of $33/barrel The 2–year Treasury yield increased to 0.17% while the 10–year Treasury yield ended the week at 0.66% The U.S. Dollar Index declined 0.6%

Weekly Market Performance Close Week YTD DJIA 24,465 3.3% -14.3% S&P 500 2,955 3.2% -8.5% NASDAQ 9,325 3.4% 3.9% Russell 2000 1,356 7.8% -18.7% MSCI EAFE 1,656 3.8% -18.7% *Bond Index 2,340.13 0.04% 5.17% 10-Year Treasury Yield 0.66% 0.02% -1.2% *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.

Markets Jump Forward Despite an Abundance of Negative News

U.S. stocks jumped sharply on the week, as investors were encouraged with all 50 states relaxing stay–at–home–orders and hope for a recovery permeated Wall Street\’s mood.

The small-cap Russell 2000 jumped 7.8% on the week, followed by the more than 3% gains for the DJIA, S&P 500, and NASDAQ. All of the 3 larger-cap indices were within whispers of their early March highs.

The week\’s advances highlighted the differences in YTD numbers between NASDAQ and the DJIA, as NASDAQ is comfortably in positive territory (up 3.9% YTD) whereas the DJIA is off 14.3% YTD. But the fact that NASDAQ is comfortably positive for the year and that the S&P 500 is within shouting distance of that wholly–phycological 3,000–point barrier was welcome news for investors heading into the Memorial Day weekend.

Jobless Claims Continue to Increase, But at a Slower Rate

Initial claims for the week ending May 16th decreased by 249,000 to 2.4 million, bringing the 9–week total to 38.6 million. Continuing claims for the week ending May 9th increased by 2.5 million to over 25 million, which is an all-time high.

From the Department of Labor directly:

• The highest insured unemployment rates in the week ending May 2 were in Nevada (23.5), Michigan (22.6), Washington (22.1), Rhode Island (19.9), New York (19.6), Connecticut (19.3), Puerto Rico (19.2), Mississippi (18.8), Vermont (18.8), and Georgia (18.5).
• The largest increases in initial claims for the week ending May 9 were in Florida (+48,222), Georgia (+14,420), Washington (+8,615), New York (+4,309), and South Dakota (+1,340), while the largest decreases were in California (-103,590), Texas (-102,382), Oklahoma (-54,806), North Carolina (-28,602), and Missouri (-21,382).

Housing is Hurting

The Housing market received a lot of new data this week and most of it showed that COVID–19 has hammered the housing sector.

On Tuesday, it was reported that:

• Privately-owned housing starts in April were 30.2% below the March rate and 29.7% below the April 2019 rate
• Single-family housing starts in April were 25.4% below the revised March rate
• Privately-owned housing units authorized by building permits in April were 20.8% below the March rate
• Privately-owned housing completions in April were 8.1% below the March rate

On Wednesday, the National Association of Home Builders released data that showed builders\’ confidence for newly-built single-family homes increased seven points to 37 in May (50 is considered breakeven). This increase in builder confidence follows the largest single monthly decline in the history of the index recorded last month.

In addition, the index reflecting builders\’ confidence about current sales conditions increased, as did the builders\’ confidence index measuring prospective traffic of home buyers.

While home builders might be optimistic, on the same day the Bureau of Labor Statistics reported that there were 618,000 layoffs in the construction sector in March – triple the amount for the month before.

On Thursday it was reported that existing home sales cratered by 17.8% month-over-month in April – the lowest level of home sales since July 2010.

More Negative Data

• The Conference Board\’s Leading Economic Index decreased 4.4% month–over–month in April following a record 7.4% decline in March
• The Philadelphia Fed Index for May increased to -43.1 from the -56.6 reading in April