Overview: Stocks had another volatile trading week with major global stock indices down between 1-3% for the week. A speech by Federal Reserve Chair Jerome Powell mid-week rattled the markets, as Powell warned of significant downside risk to the economy while emphasizing a potential need for more fiscal policy and stimulus to address liquidity and solvency problems. In the U.S., the S&P 500 Index ended the week down 2.2%, as investors digested the uncertainties of economies reopening. Interest rates remained near record lows, with the 2-year and 10-year Treasuries finishing the week at 0.15% and 0.64% respectively.
Economic data, as expected, continued to validate the extent of the effects of the pandemic. U.S. Industrial Production (IP) fell 11.2% in April, the steepest one-month fall on record. Meanwhile, April U.S. retail sales fell 16.4% from the prior month across all sectors. Clothing stores fared the worst (-89%), with grocers the only sector showing gains (+13%). U.S. weekly initial jobless claims came in at 2.98 million for the week ending May 9 but declined for a sixth straight week. Continuing claims were 22.6 million, below expectations, and a sign that a portion of the 36.5 million workers that claimed initial unemployment over the past two months are beginning to return to work.
An excerpt from JP Morgan: With “stay at home” orders across the U.S. approaching previously announced deadlines and slowly coming to an end, investors and policymakers alike hope that a reopening of the U.S. economy will mark the start of the recovery. However, while turning off the economy was as easy as flipping a light switch, reopening the economy will require the use of a dimmer, as it is a far more complex and gradual process. Overall, we continue to believe that the economy is currently experiencing the steepest decline since World War II and that growth will remain muted throughout the remainder of the year as businesses partially reopen. However, we do anticipate a surge in economic growth once a vaccine or viable treatment becomes available, which will likely be around the middle of 2021.
This week: Market highlights this week will be a speech from Fed Chair Powell on Tuesday, along with housing starts and home sales throughout the week. Wednesday brings a historic auction of 20-year Treasury bonds, the first issuance of this 20-year maturity since 1986.
Weekly Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management, Barron’s
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