Monthly Market Recap: June 1, 2020

May Market Recap

June 1, 2020

As the calendar turns to summer, temperatures, tensions, and ticker symbols continue to rise.

While the pace slowed compared to the historic gains we saw in April, stock prices generally kept chugging higher in May. Both the S&P 500 and Dow Jones Industrial Average gained more than 4% last month, while the NASDAQ seemingly lapped the field rising almost 7%.

The remarkably swift recovery for equities, in other words, just keeps going. Since its intraday low on March 23, the S&P 500 has now risen 39% and sits only 10% below its all-time high (set February 19). After another exceptionally strong month, the NASDAQ is firmly positive year-to-date and within 4% of its February high.

For the second month in a row, all 11 sectors in the S&P 500 climbed higher. This after two consecutive months (February and March) in which all 11 sectors were negative. Technology (+7.1%) led the charge in May with Materials (+7.0%) and Communication Services (+6.0%) close behind. Consumer Staples (+1.5%), Energy (+1.9%), and Real Estate (+1.9%) gained the least.

Index May 2020 YTD 2020
Dow +4.26% -11.06%
S&P 500 +4.53% -5.77%
NASDAQ +6.75% +5.76%

May was not without its bumps. The Dow suffered its first three-day losing streak since early March, culminating with a 517-point drop on May 13 after Federal Reserve Chair Jerome Powell said the Fed’s economic outlook was “highly uncertain and subject to significant downside risks.”

A few days later, however, Powell’s comments on CBS program 60 Minutes marked a turning point in sentiment. The Dow rocketed 912 points (+3.9%) the day after Powell’s interview, with even larger single-day gains in the Russell 2000 (+6.1%) and crude oil (+11.5%). The fact that several US states began re-opening non-essential businesses certainly contributed to the optimism.

Stock prices in May also jumped more than once on positive developments regarding a vaccine for the COVID-19 virus. While the news is hopeful, medical experts have been quick to remind us that such trials remain in their early stages and it’s unlikely any vaccine will be widely available before 2021.

Growth stocks (+6% in May), tripled the returns of their value counterparts (+2%) last month, although that trend has begun showing signs of a reversal. Small-cap stocks, for example, outperformed meaningfully last month as the Russell 2000 increased 6.4%. As investors start to have more conviction about a strong economic recovery in the second half of the year, the companies and sectors that lagged in recent months have begun to close the performance gap.

The final report card showed a 15% drop in first-quarter earnings for S&P 500 companies compared to a year earlier. Roughly 63% of companies beat consensus forecasts, which sounds constructive but was actually the lowest such percentage of “beats” for any quarter in more than 7 years.

While valuations are admittedly more difficult to calculate with future forecasts so cloudy, there’s little doubt stocks are again trading at lofty numbers. The forward price-to-earnings (P/E) ratio of the S&P 500 finished May at 21.5, according to FactSet. That’s notably higher than the index’s P/E in mid-February, when it traded at 19x forward earnings.

The latest economic numbers showed a mix of good and bad, but provided enough encouraging data for investors to focus on the positives. US consumer spending tumbled almost 14% in April, the largest monthly decline since the government began tracking those numbers in 1959. Jobless claims nationally have eclipsed 40 million, meaning one in four working Americans have lost their jobs since the pandemic began.

Hospitality and transportation data, however, showed meaningful increases in both hotel occupancy and airline travel. New home sales rose more than expected in April. Consumer confidence also moved higher after steep declines the previous two months.

The death of George Floyd at the hands of Minneapolis police on May 25 ignited the flames of protest as Americans all over our country filled the streets demanding justice for the four officers involved, one of whom was arrested and charged with third-degree murder. It’s too early to know how long the civil unrest might linger or whether large groups of public protesters will accelerate the spread of COVID-19, which could bring economic consequences.

The sudden change in the news cycle focusing on Floyd’s death and resulting protests made it easy to overlook important developments between the US and China. Political rhetoric between the world’s two largest economies escalated sharply last month.

Several times, Donald Trump publicly blamed China for not better containing the coronavirus and threatened action if Chinese leaders passed a controversial national security law regarding Hong Kong. When China did pass such legislation late in May, Trump announced a new set of retaliatory measures that include stripping Hong Kong of its special/exempt status on trade and travel.

Speculation is growing about whether the countries’ “Phase One” trade deal will ever be implemented. Given the stock market’s focus on US-China relations in recent years, it’s a topic that could certainly affect investor sentiment in the months to come. Emerging Market equities (+3.0% last month) lagged US stocks in May. Non-US Developed equities (+5.4%) outperformed slightly.

Oil prices nearly doubled in May. West Texas Intermediate Crude finished the month at $35.49 per barrel, up from $18.84 at the end of April. That’s still well-below the January highs of $63 per barrel.

Ten-year US Treasury bonds ended May yielding 0.65% (compared to 0.62% a month earlier).

 

 

 

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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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