Markets Jump Again Despite Backward-Looking Negative News


Weekly Market Update — June 1, 2020

  • The stock market jumped again this week as states continued relaxing their stay–at–home orders and investor optimism about an economic recovery was high
  • The very narrowly-defined DJIA led the way with a gain of 3.8%, followed by the S&P 500\’s 3.0% gain and the smaller–cap Russell 2000\’s 2.8% jump
  • In an unusual turn, NASDAQ underperformed its index peers and advanced 1.8% on the week, but is still handily ahead of each on a YTD basis
  • Every one of the S&P 500 sectors finished in positive territory, with Financials and Industrials leading the way, up over 6% each
  • There was a lot of chatter about relations between the U.S. and China, after China proceeded to tighten control over Hong Kong, setting off a flurry of uncertainty, although it did not rise to the level of impacting the Phase One trade deal – yet
  • There continued to be a glut of negative economic data, especially in the manufacturing sector, but most of that data was looking backwards
  • The 2–year yield declined to 0.15% and the 10–year yield declined to 0.65%
  • The U.S. Dollar Index declined 1.6%
  • WTI crude rose 6.3% to over $35/barrel
Weekly Market Performance

Close Week YTD
DJIA 25,383 3.8% -11.1%
S&P 500 3,044 3.0% -5.8%
NASDAQ 9,490 1.8% 5.8%
Russell 2000 1,395 2.8% -16.4%
MSCI EAFE 1,725 3.4% -15.3%
*Bond Index 2,339.31 -0.03% 5.14%
10-Year Treasury Yield 0.65% -0.01% -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.

Markets Jump Again Despite Backward-Looking Negative News

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

It was the second consecutive week of very positive gains for U.S. stocks, with value stocks once again outpacing their growth counterparts. By Thursday, the S&P 500 had moved within 10% of its all-time high, which dragged it out of correction territory. Both the DJIA and the S&P 500 hit purely–psychological thresholds this week, with the DJIA topping 25,000 and the S&P 500 topping 3,000.


NASDAQ, on the other hand, came within about 3% of its high before slightly pulling back, but it is firmly out of the technical definition of correction territory. Further, NASDAQ is another good week away from topping the wholly-psychological 10,000–point level.

GDP Falls More than Expected

The Bureau of Economic Analysis released GDP numbers on Thursday morning and investors saw that real gross domestic product decreased at an annual rate of 5.0% in the first quarter of 2020. In the 4th quarter of 2019, real GDP increased 2.1 percent.


This was the second estimate from the BEA and it was 2–tenths lower from the first estimate (4.8% to 5.0%). Consumer spending was revised higher to an annual contraction of 6.8%.

Jobless Claims Still Massive

The sheer size of job losses continues to rise, with initial claims of over 41 million since mid-March, when the impact of COVID–19 first started to appear in the jobless claims data from the Department of Labor. This week, initial claims came in at 2.1 million, which was in line with expectations and a decrease of 323,000 from the previous week\’s level.


The DOL also reported what most might consider a glimmer of good news, to the extent that such massive jobless numbers can offer any glimmers of hope. For the week, the DOL reported that the “seasonally adjusted insured unemployment rate was 14.5%, which is a decline of 2.6% from the previous week.”

Corporate Profits Down Significantly

Also on Thursday morning, the Bureau of Economic Analysis released corporate profits data and it was sobering. The BEA reported that after-tax corporate profits fell at an annual rate of $1.6 trillion, which is down 11.1% year–over year and down 4.1% from the previous quarter.

When the BEA included the value of inventory and other adjustments, after-tax profits still declined 8.6% on the year. Further, taxes on corporate income fell 7.7% from a year ago.


Earnings Season Winds Down

As Q12020 earnings season winds down, research firm FactSet reported a number of interesting data points for aggregate corporate earnings. As of last Friday, with all but 5% of S&P 500 companies having reported actual results, here is what FactSet reported:

  • 64% of S&P 500 companies have reported a positive EPS surprise and 57% of S&P 500 companies have reported a positive revenue surprise.
  • For Q1 2020, the blended earnings decline for the S&P 500 is -14.6%. If –14.6% is the actual decline for the quarter, it will mark the largest year–over–year decline in earnings reported by the index since Q3 2009 (-15.7%).
  • The forward 12–month P/E ratio for the S&P 500 is 21.0. This P/E ratio is above the 5–year average (16.8) and above the 10–year average (15.1).

Chicago Fed National Activity Index Collapses

The Federal Reserve Bank of Chicago tracks the Chicago Fed National Activity Index, a monthly index designed to gauge overall economic activity and created from a weighted average of 85 existing monthly indicators of national economic activity. It is important to note that a value of zero is associated with the national economy expanding at its historical (average) rate of growth, while a positive index reading indicates “growth above historical average growth” and a negative index reading indicates “growth below historical average growth.”


The 85 economic indicators that make up the CFNAI come from four broad categories, including production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories.

According to the release from the Federal Reserve Bank of Chicago on May 26th:

  • Declines in production– and employment-related indicators, pushed the CFNAI to –16.74 in April from –4.97 in March.

It should be noted that April\’s large double-digit drop (of –16.74) is unprecedented for this Index and before that had only flirted with minus 5 in 1974 and again in 2008/2009.

  • The Index\’s three–month moving average, CFNAI-MA3, decreased to -7.22 in April from -1.69 in March.

It was noted that “an increasing likelihood of a recession has historically been associated with a CFNAI-MA3 value below -0.70.”



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