Market Monitor: June 16, 2020, Update

Headlines and Highlights
  • Stocks finding footing after torrid two-month run: The Standard & Poor’s 500 capped a 44% rally in 53 trading days following the coronavirus sell-off by edging briefly into positive territory for 2020 last week before pulling back as much as 8%. Still, several big tech stocks behind the surge – Apple, Amazon, Facebook and Microsoft – closed at record highs. Fears of a potential spike in nationwide COVID-19 cases as states reopen halted the market’s momentum and helped send the index to its first three-day losing streak since early March before moving upward again this week.
  • Fed sees long uphill climb ahead: The Federal Reserve delivered both good and bad news at its monthly meeting last week, pledging to leave interest rates near zero through 2022 but projecting an arduous path back from recession. Fed officials projected unemployment to end 2020 at 9.3% and remain comparatively high at 5.5% in 2022. Chair Jerome Powell characterized the extent of the downturn and pace of the recovery as “extraordinarily uncertain” but vowed to use the full range of tools at the Fed’s disposal to support the economy.
  • Recession officially began in February: The longest expansion in U.S. history ended in February and gave way to the recession starting the same month, according to the official arbiter of recessions. The declaration by the National Bureau of Economic Research means the record expansion lasted 128 months, twice as long as the average expansion. It was the fastest-ever declaration of a recession by the NBER.
Chart of Interest

market monitor

Bungee Bounce:  Even after a historic rally, U.S. stocks remain stuck in the red for 2020. The S&P 500 was down 4.2% year-to-date through mid-month; the Russell 2000 -14.3%.

Sources: Morningstar, Altair Advisers
Our Views
  • The pullback in stocks last week confirmed our view that the markets will likely be choppy and volatile but range-bound for a while as investors weigh the possibility of a V-shaped recovery against the threat of a second wave. Our longer-term outlook remains positive.
  • A full recovery from this recession could take two years or more, as the Fed warned last week, and cannot be complete until a vaccine is distributed. The worst of the economic slowdown appears to be over, however, and we expect to see substantial improvement in the months ahead. A recovery in the labor market already appears under way, with jobless claims and unemployment declining, while consumer confidence and spending also appear to have turned the corner.
  • A second wave of COVID-19 that could set back the recovery is the biggest near-term threat to the economy and to markets. It is difficult to draw conclusions about the longer-term trend from the mosaic of metrics. The number of cases has risen in the southern and western U.S. and some other countries, while other areas and statistics (including positive tests and ICU usage) show progress. We do not yet see evidence of a second wave that will derail markets.
  • Further fiscal stimulus is likely and could be needed to avoid long-term damage to the economy, as Powell noted last week. Congress is considering funding for several key areas: infrastructure, extending unemployment benefits, aiding state and local governments to help cover huge budget deficits caused by the pandemic, and providing more money to businesses to avoid unnecessary failures.
  • The coronavirus pandemic and Beijing’s security clampdown on Hong Kong have exacerbated U.S.-China tensions and heightened geopolitical risks for investors. Further deterioration in the two superpowers’ relationship is likely as Washington seeks further punitive measures, although political considerations ahead of the November election probably will limit the scope of any U.S. initiative.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice