Equity Markets Rebound on News of Fed Buying Corporate Debt
Market Recap week ending 6/19/2020
US equity markets rebounded from the prior week’s losses on news that the Federal Reserve would start buying individual corporate debt issues, talk of an infrastructure spending proposal from the administration, and some positive economic data surprises. The rally was tempered a bit later in the week as Arizona, Florida, and California reported a significant spike in coronavirus infections. For the week, the S&P 500 gained 1.9%, the Dow tacked on 1%, the NASDAQ led gains with an increase of 3.7%, and the Russell jumped 2.2% higher. Trade throughout the week seemed somewhat subdued until Friday’s quadruple witching when markets endure the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-futures. US Treasuries were quiet, with the 2-year note yield increasing by one basis point to close at 0.19%. The 10-year bond yield was flat on the week closing at 0.70%. Gold traded $16 higher to close at $1753.10 an Oz. Oil traded meaningfully higher, WTI gained 9.7% or $3.59 to close at $39.74. Interestingly, the energy sector was one of the worst-performing sectors last week despite the nice move in crude. There were no changes to our models last week.
The week started with a notice from the Federal Reserve that it would begin buying individual corporate bond issues in its Secondary Market Corporate Credit Facility. The news lifted stocks and reinforced the notion that the Fed is certainly all in. However, the timing of the announcement is a bit intriguing, given that the Fed could have easily announced the new initiative at the prior week’s Federal Open Market Committee meeting. Did the Federal Reserve see something that warranted the move in the days that followed their monthly meeting? None the less the market rallied on the news and then added more as a trillion-dollar infrastructure spending plan from the Trump administration was announced. It will be interesting to see if both sides of the aisle can get together in a presidential election year to pass an infrastructure spending bill. Separately, the Bank of England announced an increase in its stimulus spending efforts, again reiterating that global central banks are and will provide more stimulus if needed.
Economic data was mixed on the week but highlighted by a rebound in May Retail sales. May Retail sales came in at 17.7% well above the consensus estimate of 9% and sharply higher than the revised prior reading of -14.7%. Later in the week, the Philly Fed index for June blew away estimates of-25 to come in at +27.5, the May reading was -43.1. Initial claims for the week toned down some of the enthusiasm seen on the job front recently. For the week, 1.508 million people applied for unemployment insurance versus an expectation of 1.350 million. Continuing claims continued to be elevated, coming in at 20.544 million.
