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Overview: Stocks retreated last week on a cautious U.S. economic outlook from the Federal Reserve and on fears of a second wave of COVID-19. Recent data shows states that started reopening earlier (including California, Texas, and Florida) have started seeing rising cases and hospitalizations. The S&P 500 index ended the week -4.7% lower after Thursday’s biggest single-day pullback since March. International developed stocks were down -4.2% for the week, and emerging market stocks fared relatively the best, off -1.5%. U.S. Treasury yields have traded in a narrow range the past three months, remaining near record lows. The 2-year and 10-year Treasury notes ended the week at a 0.19% and 0.70% yield respectively.

Economic news: The Federal Reserve completed its 2-day meeting last Wednesday. The committee left the fed funds rate target range unchanged at 0 – 0.25% and stated short interest rates are likely to remain unchanged through 2022. The policy outlook continued to remain accommodative, with the Fed’s expected pace of asset purchases to be at least in-line with current levels. In the Summary of Economic Projections (SEP) released after the meeting, the Fed forecasts a 6.5% contraction in U.S. gross domestic product (GDP) in 2020, a 5% rebound in 2021 and 3.5% growth in 2022. In jobs data, U.S. initial jobless claims continued to trend downward and fell to 1.5 million in the week ending June 6. Continuing claims fell to 20.9 million, which was a 339,000 improvement from the prior week.

Looking Ahead/JP Morgan: The economic outlook is beginning to become clearer with the Fed’s recent release of the SEP. The second quarter earnings season kicks off at the beginning of July, and should provide some additional clarity. As companies report earnings, they will also provide guidance for the rest of the year, with the second quarter likely marking the bottom in S&P 500 quarterly profits. It is important to recognize that right now, the market cares much more about the direction of the data, rather than the level. The data itself will likely be mediocre in the medium term, and as the rate of change slows, markets will be forced to focus on the fundamentals. This suggests that volatility is not behind us.

Weekly Returns and Data

Sources:  Goldman Sachs Asset Management, JP Morgan Asset Management

This communication is for informational purposes only. It is not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Indices are unmanaged, represent past performance, do not incur fees or expenses, and cannot be invested into directly. Past performance is no guarantee of future results.