Markets rose this week and investors seem to be more encouraged at economic developments. Several U.S. states
have permitted or soon will permit non-essential businesses to open in spite of the continuing Covid-19
threat. Equities finished the week up even after disastrous unemployment levels. Prices even rose Friday after
unemployment reached 14.7%, a level not seen since 1940. For the second week Energy led the S&P sectors,
finishing ahead of communications and materials to round out the strongest sectors. Analysts will likely
continue to observe production and consumption adjustments made by market participants closely after shutdowns
ground much of economic activity to a halt. Tensions with China will also remain in focus. Unemployment is
likely to remain elevated for several more weeks, but economic activity is likely to begin a slow and steady
return to normal in the coming weeks and months. Infection data is becoming more accurate as testing becomes
more widely disseminated, helping to better assess economic options.
Overseas, markets also performed well. European countries have begun eyeing reopening their economies
similarly to the U.S., likely encouraging investors. On Friday, European indices rose along with American
counterparts in spite of high unemployment. All major European indices returned positive results. Japanese
equities returned positive performance as well, as investors seem to be encouraged by developments surrounding
the pandemic. After doing better than most developed countries initially, Japan is now starting to experience
more widespread outbreaks, prompting an oStockPointDigitalcial state of emergency. Japan has the highest percentage
of “at risk” population in the world, making containment absolutely critical.
Markets rose this week, with major equity indices bringing encouraging returns. Fears concerning global
stability and health are an unexpected factor in asset values, and the recent volatility serves as a great
reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified
portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs,
and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk
decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk
tolerance can lead to smoother returns and a better probability for long-term success.
Chart of the Week
Oil has had an impressive recovery the last two weeks. The price improvement could reflect the general
optimism among investors the global economic recovery is underway, prompting support for oil prices from the
demand side.
Market Update
Equities
Broad market equity indices finished the week up, with major large cap indices underperforming small cap.
Economic data is still predominantly negative, but the first steps needed to see leveling out are being taken,
as multiple U.S. states have reopened their economies and more are poised to do the same this month.S&P
sectors returned unanimously positive results this week, as broad market movements showed investor optimism
amongst all sectors. For the third consecutive week, energy led the best performing sectors, followed by
technology, returning 8.25% and 6.64% respectively. Consumer staples and utilities performed the worst,
posting 0.87% and 0.53% respectively. Technology leads the pack so far YTD, returning 3.37% in 2020.
Commodities
Commodities rebounded further this week, driven by large gains in oil. Oil markets have been highly volatile,
with investors focusing on output and consumption concerns. Global fears surrounding the virus outbreak have
stoked demand concerns, as a significant impact on energy demand is expected as a result. Demand is likely to
recover slowly, as countries around the globe have begun re-opening their economies. The supply side of the
equation is likely to face reductions in output, as lack of storage may continue to be a problem.Gold rose
slightly this week as markets reacted to information surrounding Covid-19 and global trade. Gold is a common
“safe haven” asset, typically rising during times of market stress. Focus for gold has shifted to global
macroeconomics and public health concerns. Weakening real currency values resulting from massive stimulus
measures may further support gold prices.
Bonds
Yields on 10-year Treasuries rose from 0.61% to 0.68% while traditional bond indices fell. Treasury yields
rose as the efforts to contain the spread of Covid-19 appear to be yielding results and the economy is set to
gradually reopen. Treasury yields will continue to be a focus as analysts watch for signs of changing market
conditions.High-yield bonds rose slightly again this week, casing spreads to tighten. High-yield bonds are
likely to remain volatile in the short to intermediate term as the Fed has adopted a remarkably accommodative
monetary stance and investors flee virus risk factors, likely driving increased volatility.
Lesson to be Learned
The wise man bridges the gap by laying out the path by means of which he can get from where he is to
where he wants to go.”
-J.P. Morgan
It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and
uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is
mission critical for long term success. Focusing on the long-run can help minimize the negative impact
emotions can have on your portfolio and increase your chances for success over time.
The Week Ahead
After getting a clear view at the damage to the employment market, investors will get a fresh look at the
damage done to consumption. This week sees updated retail sales numbers, which will depict April’s numbers.
Also on the agenda are fresh CPI number as well as weekly unemployment claims updates.More to come soon. Stay
tuned.