Market Update - May 26, 2020Submitted by Jodi Vleck , Beta Wealth Group on May 26th, 2020
For the week ended May 23rd, U.S. equities gained ground driven by optimism on several fronts: Federal Reserve Chair Jerome Powell's '60 Minutes' interview where he reiterated his view that the Fed had not run out of ammunition and that there is really no limit to what could be done through government lending programs, Monday’s announcement by Moderna that a Covid-19 vaccine produced antibodies (the primary objective) during Phase I trials, and the likelihood of the government pledging billions of dollars to firms involved with vaccine development. On the negative side, U.S.-China trade rhetoric ramped up again with the US Government assigning blame for Covid-19 to China and tightening restrictions on Chinese telecom operator Huawei, and the Senate passing legislation requiring certain types of foreign firms that do not fulfill certain regulations to be delisted from U.S. exchanges. By broader S&P sector, Industrials and Energy gained over 6% followed by Real Estate, while defensive Healthcare and Consumer Staples sectors trailed.
Foreign stocks broadly earned similar returns to those in the U.S. helped by a weaker dollar in Europe, and the U.K, Japanese and Emerging market equities lagged with minimal gains. Initiation of a 7-year 500 billion Euro Recovery fund backed by Germany and France boosted investor sentiment, although the nature of the stimulus solicited pushback from some European Union members requiring loan-only provisions. Also, despite downplaying the idea in recent weeks, U.K. policymakers are now actively reviewing the prospect of negative interest rates. Emerging markets, specifically those in Asia, were negatively affected by soured U.S.-China trade relations and additional crackdowns by the Chinese Government on Hong Kong.
U.S. bonds rose slightly as spreads for corporate credit contracted, which offset small price declines in treasuries; high yield and senior bank loans gained strongly followed by more modest gains within investment-grade debt. Correspondingly, Foreign bonds gained alongside a weaker dollar, and emerging markets bonds gained as investors returned to a risk-taking environment. Commodities gained last week on the heels of a continued recovery in energy while industrial metals also gained some ground, as the price of crude oil rose by over 10% to just over $33/barrel driven partly by a recovery in energy commodity demand.