U.S. Markets
Stocks rallied in May, sparked by a supportive Federal Reserve, stories of states re-opening, and reported progress on a COVID-19 vaccine.
The Dow Jones Industrial Average rose 4.2%, while the Standard & Poor’s 500 Index picked up 4.5%. The NASDAQ Composite led, gaining 6.7%.[1]
Shift in Focus
April’s positive momentum continued into May, as stocks registered healthy gains, and investors looked to future economic hopes rather than current woes.
Further aiding stocks was a better-than-expected jobs report and firming oil prices. Many investors breathed a sigh of relief on the news that U.S. and Chinese negotiators were planning to meet, despite the rising tensions between the two nations.
Fed’s Commitment
Stocks rallied, as hopes for a COVID-19 vaccine rose, and the Federal Reserve restated its commitment to do whatever would be necessary to support an economic recovery.
Following Memorial Day weekend, stocks surged, once again, due to rising optimism over economic re-opening, reported declines in new COVID-19 cases, and further news surrounding the development of a potential vaccine.
Sector Scorecard
The majority of industry sectors moved higher in May, with increases in Communication Services (+11.54%), Consumer Discretionary (+7.79%), Energy (+7.63%), Financials (+4.23%), Health Care (+2.26%), Industrials (+5.93%), Materials (+6.33%), Real Estate (+2.29%), Technology (+9.69%), and Utilities (+0.14%). Consumer Staples experienced a small loss (-0.07%).[2]
What Investors May Be Talking About in June
In some sense, many investors believe a sustained and complete economic recovery may rest upon developing a vaccine for COVID-19.
Vaccine Watch
The World Health Organization reports that there are more than 100 vaccine candidates, with 10 currently participating in clinical trials.[3]
Over the next couple months, results from several of these trials may be released.[4,5]
Depending on the results, the trials could provide the markets with a sense of optimism. If they prove disappointing, investors may dread the prospect of a prolonged economic recovery. Either way, many investors are cautiously monitoring the situation for further developments.
World Markets
World markets posted solid gains on economic recovery hopes, with the MSCI-EAFE Index rising 5.15%.[6]
European markets moved higher, with gains in France, Germany, and the Netherlands. The U.K. slipped 0.88%.[7]
Pacific Rim stocks were mixed, with advances in Australia (+5.37%) and Japan (+8.34%). Hong Kong dropped 6.83% due to China-related tensions. The volatile Merval Index, which tracks the largest companies based in Argentina, jumped 48.04%.[8]
Indicators
Gross Domestic Product: The economy shrunk at a 5.0% annual rate, higher than the initial estimate of 4.8%.[9]
Employment: The unemployment rate leaped to 14.7%, as nonfarm payrolls fell by 20.5 million. The unemployment rate was the highest seen since the Great Depression.[10]
Retail Sales: Retail sales plunged by 16.4%, with every sector lower except for non-store retailers, which are predominately Internet-based merchants.[11]
Industrial Production: Industrial production fell 11.2%, the largest one-month drop in the index’s 100-plus-year history.[12]
Housing: Housing starts declined 30.2% to their lowest level seen since 2015.[13]
Existing home sales tumbled 17.8% in April, which was the largest one-month drop since July 2010. The supply of homes declined 19.7%. Tightening inventories led to a new record high in the median home sales price ($286,800).[14]
Sales of new homes rose 0.6%, a surprise increase amid a consensus forecast of a nearly 22% drop.[15]
Consumer Price Index: The price of consumer goods posted its largest monthly drop since 2008, falling 0.8% in April. Excluding the more volatile food and energy sectors, core inflation declined 0.4%, the largest monthly drop since 1957.[16]
Durable Goods Orders: Orders of long-lasting goods dropped 17.2%, with demand for transportation equipment falling an eye-catching 47.3%.[17]
The Fed
Minutes from the last Federal Open Market Committee meeting reaffirmed a commitment to maintaining a zero interest rate policy until inflation reaches the Fed’s 2% target, and unemployment returns to its pre-COVID-19 level.
The Committee also focused on how they expect to use upcoming meetings to communicate about future policy decisions.
The minutes also reinforced recent comments that the Fed was not inclined to move toward negative rates.[18]
| MARKET INDEX | Y-T-D CHG | MAY 2020 |
| DJIA | -11.06% | 4.26% |
| NASDAQ | 5.76% | 6.75% |
| S&P 500 | -5.77% | 4.53% |
| BOND YIELD | Y-T-D | MAY 2020 |
| 10 YR TREASURY | -1.27% | 0.65% |
Source: Yahoo Finance, May 31, 2020
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The Nifty 50 (NTFE 50) is a well-diversified 50-stock index accounting for 13 sectors of the Indian economy. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. 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Citations.
1 – The Wall Street Journal, May 31, 2020
2 – FactSet Research, May 31, 2020
3 – Who.int, May 27, 2020
4 – CNBC.com, May 13, 2020
5 – NBCnews.com, May 8, 2020
6 – MSCI.com, May 31, 2020
7 – MSCI.com, May 31, 2020
8 – MSCI.com, May 31, 2020
9 – The Wall Street Journal, May 28, 2020
10 – The Wall Street Journal, May 8, 2020
11 – The Wall Street Journal, May 15, 2020
12 – The Wall Street Journal, May 15, 2020
13 – CNBC.com, May 19, 2020
14 – CNBC.com, May 21, 2020
15 – CNBC.com, May 26, 2020
16 – The Wall Street Journal, May 12, 2020
17 – CNBC.com, May 28, 2020
18 – The Wall Street Journal, May 20, 2020