Top Weekly Themes
- U.S. Weekly Initial Jobless Claims continue to decelerate, although not as quickly as analysts expected. Seasonally adjusted initial claims for the week ending May 30 were 1,877,000, a decline week-over-week but 77,000 higher than anticipated. The seasonally adjusted continuing claims for the week ending May 23 rose to 21,487,000. On Friday, June 5, we received a positive surprise from the U.S. Department of Labor’s May employment report. The May unemployment rate was 13.3%, significantly lower than the expected 19.6%. The 13.3% unemployment rate was also an improvement month-over-month from the 14.7% reported in April. The decline in the unemployment rate was the result of the economy adding 2.5 million jobs in May, compared to an expected loss of 8 million. The report highlighted that economic activity started to resume in May, with employment rising most in leisure, hospitality, and construction. As states increasingly lift restrictions in the coming weeks, we expect continuing claims and the unemployment rate to decline. However, the speed of the improvement is difficult to determine, and companies will continue to be faced with tough decisions regarding staffing once Pay Protection Program loans are exhausted.
- The European Central Bank (ECB) announced an increase in its bond-buying program by 600 billion euros, to a sum of 1.35 trillion euros. This additional action is meant to help offset the economic impacts of COVID-19. The ECB also extended the duration of the program from the end of 2020 to June 2021. The 600-billion-euro increase was above consensus estimates of 500 billion euros but below the “whisper number” of 750 billion. ECB President Christine Lagarde provided commentary that the economic activity in the regions appears to be bottoming, but the improvement thus far has been slow. Consistent with her comments, eurozone business activity rebounded in May, hitting a three-month high, albeit off of low levels. While the pace of recovery in Europe is unknown, the ECB’s policy announcement last week should help cushion the overall economic fallout.
- U.S. Mortgage Purchase Applications (MBA) continued to bounce back. The MBA index improved 5% week-over-week and 17% year-over-year, returning to levels last seen in January. The improvement is likely the result of low interest rates and pent-up demand but provides positive anecdotal evidence of improving consumer confidence.
Returns Table
| Equities | Week (%) | YTD (%) | 1-Year (%) | 3-Year (%) | 5-Year (%) | Div Yield (%) |
|---|---|---|---|---|---|---|
| S&P 500 | 2.8 | (2.8) | 13.3 | 35.4 | 64.5 | 1.85 |
| Russell 1000 Value | 4.4 | (12.0) | (0.1) | 11.8 | 30.1 | 2.84 |
| Russell 1000 Growth | 2.0 | 6.3 | 26.1 | 60.2 | 99.4 | 1.04 |
| Russell 2000 | 3.7 | (12.4) | (2.3) | 7.7 | 24.6 | 1.53 |
| MSCI EAFE | 4.5 | (9.3) | 2.0 | 4.4 | 21.1 | 2.85* |
| MSCI Emerging | 7.0 | (10.5) | 1.3 | 6.0 | 15.0 | 2.84* |
| Fixed Income | Week | YTD | 1-Year | 3-Year | 5-Year | Yield |
| Bloomberg/Barc US Aggregate | (0.1) | 5.0 | 8.8 | 15.3 | 21.9 | 1.40 |
| Bloomberg/Barc US High Yield | 2.1 | 2.7 | 3.2 | 11.5 | 26.4 | 6.35 |
| Bloomberg/Barc Muni Bond | 0.2 | 1.4 | 4.1 | 11.9 | 20.8 | 1.61 |
| Bloomberg/Barc Global Agg. Ex U.S. | 0.9 | 0.5 | 3.1 | 8.1 | 15.9 | 0.86 |
| Commodities | Week | YTD | 1-Year | 3-Year | 5-Year | Current Level |
| Crude Oil (WTI) ($/bbl) | 11.0 | (38.7) | (30.0) | (21.5) | (35.5) | 37.4 |
| Natural Gas ($/mmbtu) | (0.3) | (16.8) | (24.6) | (39.2) | (30.6) | 1.8 |
| Gold ($/ozt) | 0.23 | 13.1 | 29.9 | 34.6 | 46.3 | 1,718.9 |
| Copper ($/mt) | 3.3 | (11.4) | (6.1) | (1.9) | (8.4) | 5,452.5 |
| Currencies | 1 Week Ago | YTD | 1-Year Ago | 3-Years Ago | 5-Years Ago | Current Level |
| Euro/USD | 1.11 | 1.12 | 1.12 | 1.13 | 1.13 | 1.13 |
| USD/YEN | 107.63 | 108.68 | 108.32 | 110.45 | 124.51 | 109.01 |
| Pound/USD | 1.23 | 1.32 | 1.27 | 1.29 | 1.54 | 1.26 |
As of June 4, 2020 (close)
*Dividend Yield For MSCI EAFE and MSCI EM are from 5/29/2020.
Chart of the Week
Key Takeaways
- China, the generally accepted ground zero for the COVID-19 pandemic, continues to witness improving economic data. In May, both manufacturing (Mfg) and services (Svc) crossed the 50% threshold and into expansion. The recovery in China’s economic indicators is surely the result of the unusual nature of this downturn and the enormous amount of financial stimulus injected into the system. There continues to be expectations for further government intervention even with China’s stimulus estimated to be at almost 18% of GDP.
- The recovery in China could provide a helpful guide as to the pace of improvement that can be expected in other regions following the lifting of regional restrictions. As we discuss below, the manufacturing and services data in the U.S. continues to contract, but at a slower pace. If the improvement in China’s data continues it could provide a sense of the recovery timeline in the U.S.
- China’s economic data is also relevant to the expected performance of Emerging Market (EM) stocks as China represents almost 40% of the MSCI Emerging Markets index. However, early signs of China’s economic recovery have not provided a relative return boost to EM stocks with the MSCI Emerging Markets Index trailing the S&P 500 index by over 8% year-to-date as of June 3.
Commentary
Last week’s release of U.S. ISM Manufacturing and Non-Manufacturing data for May seems to indicate that economic activity continues to worsen. In the tables below, both headline ISM data series remain in contraction, but the pace of decline is slowing following the dramatic deterioration in April. Neither index is above the 50 level that indicates a month-over-month improvement but, sometimes, less negative news is all investors need to feel optimistic about the future. It should be reasonable to expect the June data to show improvement, even if still in contraction, as regions across the U.S. continue to lift restrictions.
