Market Update - June 22, 2020Submitted by Jodi Vleck , Beta Wealth Group on June 22nd, 2020
For the week ended June 19th, U.S. equities started off strong driven by hopes for additional government fiscal stimulus (including the resuscitation of a possible $1 trillion infrastructure bill), further Federal Reserve intervention into corporate bond markets and a study illustrating that a common steroid therapy has been effective in treating advanced-stage Covid-19 patients. Offsetting this was news of a new wave of infections in Beijing as well as steady case increases in several U.S. states—both States that had generally reopened early (such as Florida), as well as those that had more stringent restrictions (such as California). On the economic front, strong retail sales and industrial production data fueled the growing notion that economic activity may have troughed during the lockdown months.
Foreign equities largely tracked U.S. equities as global sentiment continued to be closely tied to broader trends surrounding re-opening of various global economies post the Covid-related economic lockdown. Within emerging markets, Chinese stocks were sharply higher as a resumption of economic activity outweighed signs of new Covid outbreaks in Beijing, while commodity and export-oriented nations fared well continuing the pattern of recent strength.
U.S. government bonds were largely flat for the week, while investment-grade and high yield corporate bonds each gained a percent concurrent with recent strength in risk assets. Last week's Federal Reserve announcement that they would not only purchase Corporate Bond ETFs but also individual Corporate Bonds, was somewhat of a surprise given that significant portions of the bond market have stabilized since March and spreads have tightened sharply since then. Foreign developed markets were little changed in local currency terms but lost a little ground owing to a stronger dollar, while Emerging market debt also gained ground although this was similarly tempered a bit due to the rising dollar.
Commodities gained broadly driven by a continued recovery in risk assets and a weaker dollar. Energy led the way with sharp gains, with the price of crude oil rising by nearly 10% to a shade below $40/barrel, driven both by signs that demand growth is picking up with much of the world slowly re-opening and that production cuts between Russia and Saudi Arabia appear to be stabilizing relative to the prior couple of months.