Market Update - June 1, 2020Submitted by Jodi Vleck , Beta Wealth Group on June 1st, 2020
For the week ended May 30th, U.S. equities rose in unison with virtually most industries experiencing an up week alongside continued easing of extreme lockdowns across the country and despite rising US-China trade tensions, moving the S&P 500 past the 3,000 level once again and implying a 5% negative YTD return. By sector, sectors traditionally thought of as cyclicals or value-oriented sectors such as financials, industrials, and materials rallied well over 5% for the week as did traditionally defensive sectors such as real estate and utilities, while energy and communications sectors lagged with modest gains. Broadly, market sentiment seems to be a little stretched however, with investor sentiment at its most bullish in two months especially as most States roll out gradual re-opening plans for local businesses.
In contrast, the geopolitical backdrop was a little more bearish, with tensions between the US and China ratcheting up both due to Covid-19 and also due to China's looming crackdown on Hong Kong's autonomy. By week's end, it appeared that Phase 1 of the U.S.-China agreement was not in jeopardy as the market had feared, but we might not have heard the last of it yet. On the economic front, weak numbers for durable goods orders and jobless claims were partially offset by mixed news on consumer sentiment and housing pries.
Foreign equities gained to a greater degree than domestic equities, fueled by the same tailwinds of optimism around re-openings and additional government stimulus measures. In Europe, release of additional details and rationale for the €750 billion plan (representing nearly 5% of EU GDP), would represent the first instance of fiscal flows moving in between member nation, intended to solidify the integration of the union but also long resisted those opposed to ‘bailouts’. As in the U.S., the severity of the Covid-19 related shutdowns have made some policies far more viable than they would have been previously. Japanese and European equities led the way, followed by the U.K. and emerging markets.
U.S. bonds fared well as interest rates ticked lower across the yield curve, despite ‘risk-on’ behavior last week; Corporate credit fared slightly better than Government bonds, with high yield bonds and floating rate bank loans leading the way. A modest decline in the U.S. dollar pushed flat returns for foreign bonds into positive territory for both developed and emerging markets.
Commodities rose across the board last week, with the increasing count of economies reopening prompting optimism in energy, industrial metals and agriculture. Crude oil prices rose nearly 7% to over $35/barrel, as related markets continued to track the optimism of risk assets to a possible "light at the end of the Covid tunnel" scenario.