US Equity Markets Rally as States Reopen their Economies
Market Recap Week ending 5/22/2020
US equity markets soared last week as all 50 States reopened their economies, albeit partially in most cases. News of positive Phase 1 results on a Covid-19 vaccine from Moderna ignited an early week rally. Tensions between the US and China increased during the week, while economic data continued to show the damage done by the shutdown of global economies. For the week, the S&P 500 gained 3.2%, the Dow increased 3.3%, the NASDAQ inked a 3.4% gain, and the Russell 2000 outperformed materially with a gain of 7.8%. The US Treasury market was quiet last week with the 2-year note yield increasing by two basis points to close at .17%, and the 10-Year bond yield falling two basis points to close at .66%. Gold prices fell by ~$21 for the week and closed at $1735.70 an Oz. Oil prices continued to rebound with an increase of 13.2% on the week or $3.87 to close at $33.25 a barrel. There were no changes to our models last week.
Optimism surrounding the reopening of global economies has helped propel the markets higher. Additionally, positive news on the creation of a vaccine aids the further reopening of economies and will help consumer sentiment. Moderna reported positive phase 1 results on their Covid-19 vaccine on Monday, and NIAID Director Anthony Fauci said that he was cautiously optimistic about the prospects for a vaccine to be created by the end of the year. However, critiques of Moderna’s phase 1 results, suggested that the company did not provide sufficient critical data.
Tensions between the US and China continued to increase. The US Senate passed the Holding Foreign Companies Accountable Act, which requires foreign companies to disclose if it is owned or controlled by a foreign government. Additionally, President Trump accused China of promoting disinformation and propaganda in the US and Europe. China also announced that it plans to implement national security laws in Hong Kong- the move prompted plans to impose sanctions on China by some US senators. It is likely that these tensions will continue to mount and influence the markets over the next several months and seems to be one of the variables that could hinder the market’s current rally.
Economic data continued to show the dire effects Covid-19 has had on the US economy. Initial claims showed another 2.438 million people applying for unemployment benefits, that’s over 38 million in 9 weeks. Continuing claims came in at 25.073 million. Housing starts and existing home sales were off significantly from their pre-COVID levels, coming in at 891k and 4.33 million, respectively. Leading indicators were a bit better than expected at -4.4 but still came in negative. Federal Reserve Chairman, Jerome Powell, continued to send the message that the Fed is all in and continues to have multiple tools left in its toolbox to help the economy recover.
Take a look at the Technical chart of the S&P 500. The 3000 level represents the 200-day simple moving average and will be a key area for investors to watching the coming days- currently, it will act as resistance, but a move through the level may very well signal more strength for the markets.
