ND&S Weekly Commentary 5.18.20 – Reopening

May 18, 2020

Last week US Stocks sold-off on dour retail sales, escalating tensions between the US and China and historic rising unemployment.
The decline in consumer spending was an unprecedented 16.4% in April while economists were expecting a 12% decline. On Friday, the Trump administration moved to halt shipments of semiconductors to Huawei Technologies in China. The Chinese countered by threatening to restrict investments in US companies if shipments were blocked. The weekly jobless claims reached 3 million creating 36 million unemployed Americans in roughly 2 months.

Major news headlines surround the Covid-19 pandemic and states reopening. There is tremendous pressure by business owners against health guidelines and restrictions. Also, employees who have received stimulus checks and unemployment benefits may be taking a pay cut by going back to work. A political battle continues with the House pushing their HEROES stimulus package and Republicans fighting to lessen the liability and burden around worker and customer safety now squarely on employers.

US stocks ended the week lower with the DJIA declining 2.6%, the S&P 500 down 2.2% and the NASDAQ slipping 1.2%. Oil stocks lost 7.0% and banks declined 5.6% for the week. Though oil increased 20.0% to close at $29.65 a barrel, oil demand remains suspect. Bank stocks received a momentary boost with rumors that Goldman Sachs may be looking to acquire. They lost ground, however, as consumer demand indicators weakened. Foreign stocks also were weak with developed (MSCI EAFE) and emerging markets (MSCI EM) down 3.2% and 1.1%, respectively. The US stock market has rebounded over 30% from its March 23rd lows. We are hopeful that the developing vaccines will be available sooner than expected.

Interest rates are anemic and there are concerns that US rates could turn negative. However, Jerome Powell, Fed Chairman, stated that “negative interest rates is probably not an appropriate or useful policy for us here in the United States.” The Fed has and will continue their monetary easing and various other liquidity facilities to support the flow of credit in several markets. As a result, the Fed’s balance sheet could grow to $10 Trillion by year-end. The 10yr Treasury yield ended the week down fractionally at 0.64%.

Our cautious posture towards the financial markets accounts for having slightly higher cash balances, safe and quality holdings and diversification in client’s portfolios. With earnings season winding down, this week will feature important housing market data, manufacturing and service PMIs, jobless claims and Fed Commentary.

We wish everyone to be healthy and safe. Our hearts go out to those affected and the medical personnel helping us get through this horrific pandemic.

“More compassionate mind, more sense of concern for other’s well-being, is source of happiness.”– Dalai Lama