Market Monitor: May 15, 2020, Update

Headlines and Highlights
  • Additional stimulus faces roadblocks: After the approval of nearly $3 trillion in four packages of emergency relief funding, the latest COVID-19 aid proposal is bogged down amid partisan differences in Congress. The Democratic-majority House was poised Friday to pass a $3 trillion bill to provide direct payments of $1,200 per household member and extend enhanced unemployment benefits through year-end. It faced scant chance of approval in the Republican-led Senate, however, where leaders advocate a pause in coronavirus relief efforts.
  • U.S.-China tensions heating up: Relations between Washington and Beijing have worsened after a brief thaw. President Trump, who increasingly blames China for the spread of the coronavirus, warned that he could “cut off the whole relationship.” Among recent actions, the Trump administration has tightened export controls targeting Huawei and its suppliers in the global semiconductor industry and barred a board that oversees billions of federal retirement dollars from investing in an international index fund that includes Chinese companies.
  • Stocks level off after dramatic descent and rebound: The stock market has settled into a pattern of mostly sideways trading after the 34% plunge and swift partial recovery it experienced from mid-February through mid-April. The Standard & Poor’s 500 Index is little-changed from one month ago and remains down about 11% in 2020.
Chart of Interest

market monitor

Market consolidates: U.S. stocks have traded in a much narrower range over the past crisis.

Sources: Morningstar, Altair Advisers
Key Takeaways
  • The market’s strength since late March is not unfounded from a longer-term perspective despite worsening economic news, largely because of the outpouring of trillions of dollars in monetary and fiscal stimulus. The possibility of near-term volatility has risen, however, amid uncertainty about both progress in developing treatments and vaccines and the risk of a second wave of infections as the economy begins to reopen.
  • The recession that almost certainly began in March is likely to see its weakest point in the current quarter as many lockdowns continue and more worst-ever data is released. While the speed of the recovery depends on the success of efforts to quell COVID-19, we believe the economy will begin showing improvement in the second half of this year.
  • Accelerated tensions between the United States and China pose a risk for financial markets if the trade war resumes while the global economy is still in the throes of the coronavirus pandemic. We do not believe President Trump wants to jeopardize his reelection effort by taking drastic punitive actions that could result in further economic pain, but he is likely to continue tough anti-China rhetoric leading into the November election.
  • Higher inflation is unlikely any time soon with global demand plummeting and unemployment spiking, relieving any wage pressure. Despite massive stimulus, inflation long-term is not a foregone conclusion.
  • Corporate earnings, historically a good gauge of how the economy is faring, were down year-over-year for the fourth time in five quarters in the January-through-March period and will be much worse in the second quarter with much of the economy frozen. Investors are essentially writing off 2020 earnings and looking ahead to 2021.

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