Market Monitor: May 22, 2020, Update

Headlines and Highlights
  • Economy edges toward recovery: Even as economic reports document further sharp declines from two-plus months of lockdowns and business closures, tentative signs are emerging of a turnaround beginning as countries and states reopen. Data show Americans are starting to drive more and dine in restaurants again, consumer sentiment has improved slightly and business surveys suggest the economy bottomed in April. However, the employment market continues to be grim with more than 39 million people jobless because of the pandemic.
  • Oil prices climb back steadily since going negative: Crude oil prices rallied back to 2½-month highs on six consecutive daily increases as a market that was in chaos less than a month ago stabilized. A slowdown in supplies and hope for higher demand has helped prices rise back above $30, a month after U.S. crude futures plunged temporarily below zero in a reflection of a stalled economy and vanished demand.
  • Markets grind higher: S. and international stocks moved upward in fits and starts in a week characterized by investor optimism for vaccine development and further reassurance from the Federal Reserve. While urging Congress to provide more fiscal stimulus, Fed Chair Jerome Powell said the central bank still has “a lot more we can do to support the economy.” The S&P 500 added 3% and small stocks as proxied by the Russell 2000 fared even better with an 8% weekly increase for a 13% gain over the past month.
Chart of Interest

market monitor

Not-so-small returns: While still lagging large-cap stocks for the year, small caps have outpaced them over the past month.

Sources: Morningstar, Altair Advisers
Key Takeaways
  • Deteriorating relations between the United States and China pose an increasing threat to financial markets. Congress moved closer to approving legislation barring Chinese companies from listing on U.S. stock exchanges and Secretary of State Mike Pompeo condemned Beijing’s plan to impose a new security law in Hong Kong as “disastrous” and a threat to the region’s freedoms.
  • The two months (as of Saturday) since the stock market’s free fall ended have brought impressive gains, although disproportionately to giant technology companies such as Amazon and Facebook, both of which reached all-time highs this week. The tech-centric Nasdaq Composite is up 3% for the year after a 35% run-up since the March 23rd
  • The dollar’s continuing strength – up 3% in 2020 – has been a contributing factor in keeping non-U.S stocks behind their domestic peers. Indexes for developed international stocks and emerging-markets stocks both have added more than 20% during the rally, but less than their U.S. counterparts.
  • Municipal bonds are back in positive territory for 2020 on the strength of a strong May. Altair’s benchmark for munis has stabilized since falling in March because of the market’s temporary illiquidity; it has gained about 2% so far this month. Liquidity has returned to the higher-rated credits, although the debt of most lower-rated issuers is still stressed and illiquid.
  • Additional fiscal stimulus that could speed the economy’s recovery may take weeks longer before gaining approval by Congress. The Senate, which declined to take up the $3 trillion House bill passed last week, recessed for 10 days on Friday without having started debate on a new bill. Treasury Secretary Steven Mnuchin says there is “a strong likelihood” another major coronavirus relief bill will be needed as the economy struggles to stabilize.

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