Weekly Commentary: Optimism Rules the Week

June 8, 2020

Global stocks surged last week as investors focused on improving, albeit still dismal, economic news. Investors seemed to shrug off concerns related to the coronavirus, trade tensions with China and widespread protests.

On the week, the S&P 500 gained 4.9% while the DJIA surged 6.8%. The Russell 2000 which represents small/midsized US companies also jumped higher as it added 8.1% for the week. International markets joined the party as developed international markets (MSCI EAFE) jumped 7.1% while emerging markets (MSCI EM) tacked-on 7.9%. Bonds sold off as the Bloomberg Barclays Aggregate finished lower by 0.49% on the week. The 10 yr Treasury ended last week at a yield of 0.895%, up 24.3 basis points on the week as bond yields reached their highest levels since March. Gold prices retreated last week and closed at $1,676.20 for a 3.5% drop for the week while oil prices continued their march higher and finished up 11.4% to $39.55 per barrel. Even after last week’s surge, oil prices are down 35.2% year-to-date.

Economic news continues to be dismal although many reports were better than feared. Investors are certainly betting that the worst is behind us. On Monday, the Institute of Supply Management reported that the purchasing mangers’ index (PMI) moved up 1.6% to 43.1% … consensus was for 43.7%. On Wednesday, the ADP National Employment Report (NER) indicated a loss of 2.76 million jobs in the private sector, better than an expected loss of 9 million jobs. May’s non-manufacturing index (NMI) grew 3.6% to 45.4%, ahead of expectations of 44.4%. Also on Wednesday, the U.S. Commerce Department reported that new orders for manufactured goods sank 13%, slightly better than expectations for a 13.4% decline. On Friday, the Labor Department reported that the country added 2.5 million jobs in May, a huge surprise given that consensus was for losses of 8.3 million jobs. The unemployment rate fell to 13.3% from April’s 14.7% level (a post-World War II high). Despite May’s gains, unemployment remains historically high – nearly four times the rate in February.

We mentioned last week that markets will need to broaden out beyond just technology stocks in order to meaningfully advance from here. The positive employment last week prompted just that … value/cyclical stocks moved nicely higher last week as investors bet that the economy might be able to recover from its downturn faster than originally thought. It is impossible to know whether or not this rotation persists, but a broadly diversified portfolio will benefit investors in such an environment.

Markets will be watching as more and more states begin their re-opening process. Stay safe.

“If you cannot do great things, do small things in a great way” – Oliver Napoleon Hill