US Markets See Large Swings as Investors Digest Dim Economic Outlook
Market Recap Week ending 5/15/2020
US equity markets saw large swings throughout the week as investors digested a dim economic outlook from Federal Reserve President Jerome Powell. Increased trade tensions between the US and China were stocked after President Donald Trump blocked semiconductor shipments to Chinese Telecom equipment maker Huawei. Data on the economic front continued to be ugly, with retail sales in April plummeting and initial claims continuing to show the incredible unemployment figures. For the week, the S&P 500 lost 2.3%, the Dow fell 2.7%, the Tech heavy NASDAQ outperformed but shed 1.2%, and the Russell 2000 lagged with a loss of 5.5%. The US treasuries curve flattened a bit with the 2-year note yield falling one basis point to .15% and the 10-year bond yield falling four basis points to .64%. Oil continued to trade significantly higher, WTI gained $4.67 or ~18% to close at $29.38. Gold gained 2.5% or $43 to close at 1756 an oz. There were no changes to our models during the week.
Federal Reserve President Jerome Powell’s economic outlook had a substantial impact on the markets. He continued to reiterate the outlook remained highly uncertain and that there is still significant downside risk. Currently, parts of the Fed funds rate curve suggest negative interest rates in the future. Yet, when asked about the prospect of negative rates here in the US, Powell dismissed it and instead called on leaders in Congress to provide more fiscal stimulus. Later in the week, a democrat sponsored 3 Trillion-dollar relief bill was passed in Congress but categorized as dead on arrival to the Senate floor.
Trade tensions increased last week with the announcement of a block on Semiconductor shipments to Chinese Telecom equipment maker Huawei. President Trump said he would not impose more tariffs on China now but left the door open for more tariffs later. The FBI also announced that Chinese intelligence agencies were engaged in acquiring US intellectual property related to efforts on COVID-19. On the margin, US-China relations look strained, and its most likely the Chinese will retaliate against US companies if more restrictions are placed on Chinese companies like Huawei or if Chinese companies are delisted from US exchanges.
On the economic data front, news continued to show a weakening US economy. Initial Jobless claims came in at 2.4 million with Continuing claims coming in at 22.83 million. Retail sales for April fell a whopping 16.4% versus expectations of a fall of 12.5%. The ex-autos figure came in down 17.2%. Industrial Production came in a bit better than expected but still came in at -11.2%. Preliminary University of Michigan Consumer sentiment was surprising coming in better than expected at 73.7.
