US Markets Rally from Optimism Surrounding the Re-Opening of the Economy

Market Recap Week ending 5/8/2020

The US equity markets rallied last week on more optimism surrounding the re-opening of the economy.  A substantial rebound in oil prices, constructive rhetoric regarding trade between the US and China, and a sense that the worst of the economic data is behind us also helped the markets.  The S&P 500 gained 3.5%, which was the first weekly gain in three weeks.  The Dow added 2.6% while the NASDAQ outperformed with an increase of 6%, which takes the tech-heavy index positive for the year.  The Russell 2000 also had a nice week with a gain of 5.5%.  The US yield curve continued to steepen as the Fed continued to reduce its purchases of US treasuries.  The 2-year note yield decreased six basis points to close at 0.14%.  The 10-year bond yield increased four basis points to close at 0.68%.  Gold gained $13 for the week and closed at 1713.80 an Oz.  Oil had another outstanding week of gains after the Saudi’s announced that they would increase prices to refineries.  WTI jumped nearly 25% or $4.91 a barrel to close at $24.71.  There were no changes to our models last week. 

More States continued to re-open their economies this week, which provided a positive backdrop for the markets.  Constructive tones around trade also helped to propel the markets higher as the US and Chinese trade officials signaled that the last iteration of their trade accord, which was forged late last year, was still in effect, and both countries would honor their obligations.  Trade talks are set to continue over the next several weeks.  Of note, Moderna, a biotech company trying to create a vaccine for Covid-19, was approved to proceed to Phase2 of their trials, the announcement stoked further optimism. 

Economic data continued to look awful.  Weekly jobless claims came in at 3.169 million, which was down from the prior week’s figure.  The employment situation report only echoed what we already knew- April Non-farm payrolls fell a whopping 20.5 million, and the unemployment rate ticked to 14.7%.  Interestingly, 78.3% of people that have lost their job indicated that they felt the layoff was temporary.  Indeed, it feels as if the market is looking at this bad news as if the worst is over and is now looking for incrementally better data.  The federal government continues to negotiate for more stimulus, and late in the week, the President indicated that he was not in any hurry for another stimulus package- stay tuned.