Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

In a May 13 webcast on the economic outlook, Fed Chair Powell took a somber tone, noting that the unprecedented speed and scope of the current downturn has been “significantly worse than any recession since World War II.” The Fed’s policy response was quick and forceful, but “may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.” He cautioned that “the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems.” Powell indicated that further fiscal support will be needed, noting that while this could be costly, “it will be worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”

Retail sales fell more than expected in April (down 23.4% in the last two months). The two-month decline was especially pronounced in clothing stores (-89.3%), home furnishings (-67.4%) electronics and appliances (-64.9%), restaurants (-50.5%), sporting goods (-49.0%), department stores (-44.7%), and auto dealerships (-36.5%). Industrial production fell 11.2% in April (the largest monthly decline in the 101-year history of the index), with manufacturing output down 13.8% (-18.0% y/y). Jobless claims continued to decline, but remained extremely elevated (one in five American workers has filed a claim in the last eight weeks). The Consumer Price Index fell 0.8% (+0.3% y/y), down 0.4% ex-food & energy (+1.4% y/y), reflecting lower prices of gasoline, vehicle rentals, airfares, and hotel rooms.

Next week, the economic data reports are not expected to be market-moving, although jobless claims will remain the key indicator to watch. Fed Chair Powell will testify on the Coronavirus Aid, Relief, and Economic Security (CARES) Act on Tuesday.

 

Indices

	Last	Last Week	YTD return %
DJIA	23625.34	23875.89	-17.22%
NASDAQ	8943.72	8979.66	-0.32%
S&P 500	2852.50	2881.19	-11.71%
MSCI EAFE	1588.17	1617.93	-22.03%
Russell 2000	1237.55	1282.93	-25.83%

 

Consumer Money Rates

	Last	1 year ago
Prime Rate	3.25	5.50
Fed Funds	0.00	2.38
30-year mortgage	3.13	4.15

 

Currencies

	Last	1 year ago
Dollars per British Pound	1.223	1.285
Dollars per Euro	1.081	1.120
Japanese Yen per Dollar	107.25	109.60
Canadian Dollars per Dollar	1.405	1.344
Mexican Peso per Dollar	23.869	19.046

 

Commodities

	Last	1 year ago
Crude Oil	27.56	62.02
Gold	1740.90	1297.80

 

Bond Rates

	Last	1 month ago
2-year treasury	0.14	0.21
10-year treasury	0.60	0.65
10-year municipal (TEY)	1.64	1.78

 

Treasury Yield Curve – 05/15/2020

 

S&P Sector Performance (YTD) – 05/15/2020

 

 

Economic Calendar

May 18	—	Homebuilder Sentiment (May)
May 19	—	Building Permits, Housing Starts (April)
	—	Fed Chair Powell Testimony
May 20	—	FOMC Minutes (April 28-29)
May 21	—	Jobless Claims (week ending May 16)
	—	Existing Home Sales (April)
	—	Leading Economic Indicators (April)
May 25	—	Memorial Day Holiday (markets closed)
May 26	—	CB Consumer Confidence (May)
May 28	—	Durable Goods Orders (April)
June 1	—	ISM Manufacturing Index (May)
June 5	—	Employment Report (May)
June 10	—	FOMC Policy Decision
July 29	—	FOMC Policy Decision

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business May 14, 2020.