Market Brief June 8 2020

Despite protests, ongoing pandemic, and fresh trade war barbs with China, the stock market rally continues. Positive news regarding a vaccine, European stimulus, and better than expected unemployment reports spurred the market. Indexes were up across the board, the Dow up 6.8%, S&P up 4.9%, and the Nasdaq 3.4% on the week.

This Past Week

The recession that started in March is the sharpest downturn since the Great Depression. As it turns out, it was also the shortest. This does not mean the US is fully recovered, or even close; a full recovery is going to take at least a few years. But look for more positive numbers from here on out, including next week’s reports on retail sales, industrial production, and home building. Friday’s employment report should leave little doubt that the US economy has already hit bottom and is starting to recover.

Meanwhile, initial jobless claims fell for the ninth consecutive week, and continuing claims remain below the peak hit in the week ending May 9, both consistent with an economy that is already hit bottom. The May jobs report unexpectedly showed a net 2.5 million jobs returned to the labor market and the unemployment rate dropped to 13.3% versus rising to consensus 19.4%.

The Week Ahead

Wednesday’s Federal Reserve’s monetary policy statement and economic projections is the week’s key risk event. One data point does not define a trend, so Friday’s blockbuster employment report is unlikely to materially change their somber economic outlook. Wednesday and Thursday’s CPI and
PPI reports offer updates on U.S. inflation.

Profits will be down substantially in the second quarter, but should recover strongly in the several quarters thereafter. No one knows for sure what the second half will bring, much less 2021 and beyond. But we think that, like in the past, those who have faith in the future will be rewarded. Year-to-date index performance; Dow down 5.0%, S&P down 1.1%, and Nasdaq up 9.4%.

Have a safe week!

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