NDS Weekly Commentary 5.11.20 – Markets Continue Higher

May 11, 2020

Markets rallied again last week as investors continue to take historically bad economic data in stride. Market optimism around the economic reopening and successes on the therapeutic front has provided the recent boost.

For the week, the DJIA advanced 2.67% while the S&P 500 gained 3.57%. The tech-heavy NASDAQ jumped ahead by 6.05%. The MSCI EAFE index (developed markets) increased 0.90% while emerging market equities (MSCI EM) gave back 0.52%. Small company stocks, represented by the Russell 2000, jumped by 5.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower by 0.33% as interest rates increased on the week. As a result, the 10 YR US Treasury yield closed the week at a yield of 0.69% (up from the previous week’s closing yield of 0.64%). Gold prices closed at $1,704/oz. Oil continued higher as traders anticipate the demand picking up slightly due to the soft reopening of the economy. Oil is likely to remain low for an extended time period with low oil prices serving as a tax cut to consumers and businesses.

The scope of the coronavirus economic impact became clearer last week as non-farm payrolls fell 20.5 million in April. This represents the first full month of the lock-down in response to the pandemic. As expected, the unemployment rate rose to a post-World War II record of 14.7%. While the data was horrific, it did eclipse analyst’s estimates. Over 18.1 million workers have reported that they are on temporary layoff, and therefore a portion should be rehired as the country gradually reopens. This will likely be a slow recovery in jobs as beefed up unemployment benefits (at least through July …) have discouraged some employees from going back to work right away.

With 86% of the constituents of the S&P 500 having reported, year over year earnings are showing a decline of 13.8% according to FactSet Research. Revenues have held up slightly better so far as they are down less than 1% from a year earlier. Technology, healthcare and consumer staples are the sectors which have held up the best.

We would not be at all surprised for the market to give a little back in the short-term as the range of plausible outcomes moving forward remains wide right now. Key variables, usually used to forecast markets, have given way to how quickly the economy reopens, the number of new virus cases, and how quickly therapies and vaccines to fight the disease are developed. We plan to take advantage of sizable price dislocations that present themselves as we remain optimistic for markets and the economy long-term.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” – Helen Keller