Overview: Markets fared well in April despite expected weak economic data and a flare-up of U.S.-China trade tensions. Early positive reports of progress on coronavirus treatments boosted investor sentiment. After a strong April, U.S. stocks took a breather last week, with the S&P 500 finishing down 0.2%. International stocks continued their recovery, with international developed stocks (MSCI EAFE) up 3.1% and emerging markets (MSCI EM) up 4.3% for the week. Oil prices rebounded as major producers announced deep production cuts in an attempt to support prices and curb global oversupply. WTI crude prices end the week up 16.8% at $19.78 per barrel. At their 2-day meeting last week, the Federal Reserve kept policy rates unchanged and vowed to be “forceful, proactive and aggressive” in combating the economic shutdown. The 10-year U.S. Treasury yield ended the week at 0.64%, trading in a tight yield range of 0.58%-0.68% over the past month.
Economic news: The initial report of first-quarter U.S. gross domestic product (GDP) came in at -4.8% annualized. A sharp decline of -7.6% in consumption was the biggest detractor. The Fed maintained prior guidance that rates will be unchanged for the foreseeable future, noting the “considerable risks to the economic outlook over the medium term.” This week the highlight will be the employment report on Friday, where the consensus is for payrolls to decline 21.5 million over the past month, and unemployment to be 16-19%.
Looking ahead: Markets are now starting to receive economic data that more fully reflects the economic impact of the downturn. Last week’s GDP report was quite gloomy, yet it was largely backward-looking and data will get much worse before getting better. The decline in economic activity in the first quarter reflected stay-at-home orders that were issued by governments in mid-March. Estimates for the second quarter reflect a deeper contraction of up to -25% annualized. This reflects in part lockdowns in April, with many businesses likely to remain closed for the foreseeable future. The good news is that many economists and strategists expect a slow recovery to start in the second half of 2020 and a strong rebound next year.
Market Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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