Market Update - May 12, 2020Submitted by Jodi Vleck , Beta Wealth Group on May 12th, 2020
For the week ended May 8th, U.S. equities rose driven by positive news regarding the 'flattening of the curve' both in the US and across the globe, and state-by-state plans to reopen various segments of the economy which helped spur investor sentiment. While the tech-and healthcare-heavy Nasdaq index moved back into positive territory for the year, ‘value’ segments of the market such as Energy and Financials still lag the former noticeably. Also, the resurfacing of trade wars between the U.S. and China led to a backdrop of uncertainty as threats to terminate the previously-agreed upon trade agreement were tempered with news of a resumption of talks. With over 85% of the S&P 500 having reported first-quarter earnings, a majority of such companies have either removed forward-looking sales and earnings guidance for the year, and consensus expectations now call for the S&P 500 to earn ~$130/share, down from the ~$150 in earnings/share expected at the start of 2020 and implying a 10-15% annual earnings decline.
Within foreign markets, U.K. and Japanese equities experienced gains, European markets ended flat while emerging markets lost ground. While the reopening of the Chinese economy has improved prospects for growth in coming quarters and provided somewhat of a hoped-for template for what other global nations may experience upon reopening, the economic outlook worldwide remains guarded. In other emerging nations such as Brazil, continued high Coronavirus infection rates, slowing growth and weak commodity prices have placed additional pressure on markets and currencies.
Over the same period, U.S. bonds lost ground as interest rates generally ticked higher last week alongside stronger hopes for economic revival; typically, such conditions lead to slightly higher interest rates as the probability of further easing becomes greater. Oddly, government credits outperformed investment-grade credit, while high yield and bank loans ended up in the green. Further, a strong dollar pushed foreign developed market debt further into the red, while emerging market bonds posted positive returns as investor risk appetites improved.
Commodity indices rose with all segments showing positive returns upon hopes for eventual economic improvement and recent supply adjustments. Energy led the way with double-digit gains and the price of WTI crude oil rose back to around $25/barrel driven partly by shutdowns of U.S. drilling activity. Longer-dated oil futures contracts (i.e. three years out) continue to price oil in the upper $30’s, with prices approaching $50 a few years beyond that.