New Employment Data Suggests Economic Come Back Leading to Market Rally
Market Recap Week ending 6/5/2020
Global equity markets had a powerful rally last week as employment data suggested global economies were coming back on line sooner than expected. The S&P 500 gained 4.9% on the week, the Dow inked a 6.8% gain, the NASDAQ lagged but added 2.1%, and the Russell 2000 popped 8.9%. Emerging markets and developed international markets also had a strong week increasing 8.8% and 7.1%, respectively. Safe-haven assets sold off during the week. Gold prices decreased by ~$68 to close at 1683.30 an Oz. The US yield curve steepened as longer tenured treasuries sold off more than shorter duration treasuries. The 2-year yield increased by 6 basis points to close at 0.21% while the 10-year bond yield increased 25 basis points to close at 0.90%. Oil prices continued to trend higher with WTI gaining 11.8% on the week or $4.17 to close at $39.50 a barrel. There were a number of changes in our models during the week that generally added equity exposure to our client accounts. Please let us know if you have any questions regarding these changes.
A strong bid to global equity markets was present for much of the week. Cyclical sectors and value issues were in favor. Financials and industrials led the charge. Airlines had a strong week after American Airlines indicated that it would be adding more flights in July to meet increasing demand. American was up over 75% on the week and induced strength in other areas of aerospace. Separately, in the Eurozone the ECB announced that it would increase its quantitative easing program by another 600 million euros to 1.35 trillion. The announcement extended gains for developed international equity markets and for the euro relative to the dollar.
Technically the market was able to add on above its 200 day moving average- this helped push momentum strategies back into the markets and also produced a strong pain trade for shorts that needed to cover and brought those on the sidelines back into the market for fear of missing out on further gains. The early week market rally only got better after Friday’s employment situation report showed a gain of 2.509 non-farm payrolls versus and expectation of a loss of 8.5 million. The unemployment rate also unexpectedly fell from 14.7 in April to 13.3% in May and was much better than the 19.9% consensus estimate. Many economists warned of reading too much into one reading but the markets shot up on the headline and held on to most of the gains on Friday.
