Performance for Week Ending 5/15/2020:
The Dow Jones Industrial Average (Dow) fell 2.65%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 2.48%, the Standard & Poor’s 500 Index (S&P 500) finished down 2.26% and the Nasdaq Composite Index (NASDAQ) shed 1.17%. Sector breadth was negative with 10 of the 11 S&P sector groups finishing lower. The Energy (-7.61%) paced the losses followed by Real Estate (-7.26%) and Industrials (-5.90%). Healthcare (+0.88%) was the only sector to finish the week higher.
||Closing Price 5/15/2020
||Percentage Change for Week Ending 5/15/2020
||Year-to-Date Percentage Change Through 5/15/2020
*See below for Index Definitions
MARKET OBSERVATIONS: 5/11/20 – 5/15/20
The major market indices finished the week lower following a batch of somber economic data and fears of renewed trade tensions between the US and China. The latter worry was a result of orders by the Trump Administration to the Federal Employee Retirement Fund to divest any investments in Chinese companies or indexes that hold Chinese investments. In addition, the Commerce Department curtailed shipments of domestic semiconductors to Chinese tech company Huawei Technologies. The action fanned fears that China could retaliate against some US companies.
After posting a bottom on March 23 and peaking on April 29, the S&P 500 has been caught in a sideways trading range. Investors appear to be trying to figure out what a re-opened US economy will look like versus what has already been priced into the market following the strong rally off the March low. While economic “green shoots” are starting to appear, they are for now a result of thing looking “less bad” than a return to normal. Until a vaccine is in place and widely administered, an economic recovery back to pre-virus levels will be very gradual. On that note, late last week the White House introduced “Operation Warp Speed,” an effort aimed at developing a working vaccine as fast as possible. President Trump recently pledged that a vaccine would be readily available by the end of this year.
The economic fallout from the coronavirus seems to be keeping investor expectations in check. Last week, the Labor Department reported that jobless claims in the week ended May 9 rose by nearly 3 million, moderately higher than the forecasted 2.5 million gain but down from the prior week’s reading of 3.18 million. Over the past seven weeks over 36 million claims have been filed, but on a sequential basis claims have now declined for six straight weeks. Elsewhere, the Commerce Department reported that retail sales during the month of April plunged by 16.4%, the biggest decline on record.
The economic environment appears to be spooking Fed Chair Powell. In a speech to the Peterson Institute of International Economics, Powell expressed growing alarm about the path ahead, describing the outlook as "highly uncertain and subject to significant downside risks." The Fed Chair went on to say, "additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery." The Fed Chair also dismissed negative interest rate, saying they were "not something we're considering.” President Trump, who has lobbied for negative interest rates for some time, tweeted that the U.S. should accept what he called a "gift" that is benefiting other countries around the world. Several Fed speakers recently have warned against negative rates. St. Louis Fed President James Bullard highlighted the policy’s mixed track record, and even dovish Minneapolis Fed President Neel Kashkari said other tools should be tried first. Chicago Fed President Charles Evans said, “at best, we’d have to study it more.”
Pause to Refresh? While markets are forward-looking vehicles and often bottom several months ahead of the economy, bottoms also tend to be more of a process than a pivot. Following the huge snapback rally we’ve had off the March lows, a period of consolidation in the weeks ahead wouldn’t be surprising. In fact, a pullback in the market would be viewed as a ‘pause to refresh’ and not the start of a broader downturn. With that said, for investors who have a longer time horizon, the return profile still looks asymmetrical, favoring upside over downside. Looking out over the next 12 to 24 months, there will certainly be speed bumps and potholes along the way, but the path of least resistance is likely to be skewed higher.
The Week Ahead: First-quarter earnings season will continue to wind down during the upcoming week with just over 20 members of the S&P 500 index scheduled to report. The retailing sector will be widely represented this week with results due out from Home Depot, Walmart, Target, and Lowe’s, among others. Investors will be listening to management updates to hear their thoughts on what the remainder of the year will look like as well as, the impact from the virus shutdown. On the data front, reports of interest include; the May housing market index, April housing starts and building permits, April existing home sales and the April Philadelphia Fed business outlook survey. Also of note will be the release of the minutes from the April Federal Open Market Committee meeting. On the Fed front, nine presentations are scheduled throughout the week including testimony by Fed Chair Powell to the Senate Banking Committee on Tuesday. Powell will be joined by Treasury Secretary Steven Mnuchin.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.
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