Market Update - May 18, 2020Submitted by Jodi Vleck , Beta Wealth Group on May 18th, 2020
For the week ended May 15th, U.S. equities gave up ground with positive sentiment about a faster recovery from Covid-19 waning somewhat, with perhaps more of an acknowledgement of a likely ‘V’-shaped recovery turning into more of a ‘U’-shaped recovery. Also, Presidential and Senate pushback on a new Congressional $3 trillion relief package, ramped-up rhetoric about a potential escalation of the US-China trade war and persistent Covid-19 infection rates across a few reopened economies also drove concerns surrounding ramifications on U.S. and broader global economic growth. Large caps outperformed small caps sharply with investors continually seeking scarce growth; by sector, health care equities led the way as the only group with positive returns, while cyclically-sensitive sectors such as energy, industrials, and financials lost around as did real estate. On the economic front, retail sales and jobless claims data continued to show economic weakness, while consumer sentiment improved modestly.
Foreign stocks in the U.K. and Europe fared similar to U.S. equities in local currency terms although a stronger dollar acted as a headwind thus resulting in constant currency declines, while Japanese and Emerging Market equities fared a bit better. In China, where businesses have re-opened over the last few weeks from widespread lockdowns, economic activity continues to show improvement from prior lows lows, including industrial activity.
U.S. bonds gained a bit of ground due to investors moving away from risk assets, causing yields along the longer end of the yield curve to tick down a few basis points, with front-end yield expectations over the next several years anchored between zero and a quarter-percent due to expectations for continued easy Fed rate policy. Investment-Grade Credits outperformed Government Credits slightly, although high yield bonds suffered losses more commensurate with equities. Foreign developed and Emerging Market bonds were little changed in local currency terms, but were pulled down by a strong dollar.
Commodities ticked higher broadly led by gains in energy and precious metals, while trade-related industrial metals and agriculture gave up ground. Crude oil prices recovered by about 10% during the week to just under $30/barrel, with continued expectations for demand to slowly recover alongside planned production cuts.