US equities exhibited strength this week, as the S&P 500 Index climbed higher and cut year-to-date losses to under 10%. The gains came despite the Friday release of the April jobs report, which showed the unemployment rate rising to a level not previously seen in the post-war economy.
“This recession is unique, but that might not be all bad news,” said LPL Financial Senior Market Strategist Ryan Detrick. “We’ve had to flip a switch on the economy, essentially frontloading an entire recession’s worth of damage into a couple months, creating some all-time dismal data. But that means we’ll eventually be able to flip it back on, supporting a robust recovery.”
The NASDAQ Composite, with its weighting in health care/biotech and technology names, led the market gains. The NASDAQ has so far enjoyed a massive comeback this year, erasing the more than 20% losses experienced during February and March and now sports a positive year-to-date return. Small caps outperformed on the week, but the Russell 2000 remains more than 20% below its February highs.
Growth stocks led value by a wide margin, though the leading sectors were energy and technology, which both gained approximately 6%. This is the third consecutive week of leadership for energy stocks. Utilities lagged and was the only sector lower on the week.
The MSCI EAFE and the MSCI Emerging Markets both added very modest gains to close up more than a 1% this week, as concerns subsided over further tensions between Washington and Beijing. China reported that its dollar-denominated exports increased at its fastest pace in more than a year.
During this week, European shares were under pressure over a dismal gross domestic product (GDP) forecast for the European Union that belied optimism over a prompt economy recovery. Adding to pressure were concerns over future asset purchase programs by the European Central Bank (ECB) after a ruling by Germany’s highest court on Tuesday gave the ECB three months to justify its stimulus plans. Many Asian markets were partially closed due to the Golden Week holiday.
Fixed Income and Commodities
A choppy week of trading concluded for bonds, as investors continued to grapple with weak economic data and increasing discussion of reopening the economy. The yield curve steepened slightly as yields on the longer end of the curve rose slightly, while the 2-year Treasury yield fell to its lowest level ever, undercutting the previous record from 2011. Credit spreads tighten modestly in both the high-yield and investment-grade markets.
Oil prices rallied with June contracts for WTI crude posting a gain of approximately 20% this week, contributing to energy stocks leadership.
Looking ahead, Friday will see the closely watched retail sales report. Given the current unemployment challenges along with COVID-19, not surprisingly, this number is expected to be weak. Initial weekly jobless claims will be released on Thursday, with the hope that claims could be starting a downward trajectory. Tuesday and Wednesday cover the consumer and producer price index, both are expected to decline. On Tuesday, we will find out how Washington is doing with regard to the Treasury Budget and its report. Business inventories, Michigan sentiment, and manufacturing and industrial production round out the week on Friday.
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