Weekly Economic Update: June 1, 2020

The Markets (as of market close May 29, 2020)

With the stock market closed last Monday in observance of Memorial Day, Tuesday’s trading led to solid returns for the stock market. The S&P 500 climbed past the 3000 mark for the first time since March, only to trickle below by the end of the day. The small caps of the Russell 2000 led the indexes after climbing 2.77%, followed by the Dow (2.17%), the Global Dow (1.96%), and the Nasdaq (0.17%). Stocks soared for most of the day, only to be tempered later on Tuesday after a report arose that the United States was considering imposing sanctions on Chinese officials.

The Dow closed up over 2.0% on Wednesday to reach 25,000 for the first time since early March. The S&P 500 gained nearly 1.5%, pushing past 3,000 for the first time since March 5. The Nasdaq was held back by some large tech stocks, yet still managed to close up by over 0.75%. The small caps of the Russell 2000 surged ahead by more than 3.0% by the close of trading last Wednesday. The possibility of cash incentives to get people back to work was another sign that the economy is slowly beginning to rally. Globally, the STOXX Europe 600 index rose 0.2% on the heels of the European Union’s proposal of an $825 billion recovery fund to help offset the economic ravages caused by the pandemic.

Fears that The United States would take action against China sent markets reeling at the end of the day last Thursday. Stocks fell for the first time in four days as the major global stock benchmarks closed the day in the red. Only the Global Dow posted a modest gain. Reopening economies provided optimism for foreign investors, pushing European stocks higher. Crude oil prices continued to climb, gaining nearly 2.0% on the day.

Investor optimism remains driven by the prospects of an economic recovery. Stocks surged ahead last Friday and for the week, despite U.S. condemnation of China for its handling of the pandemic and its increasing attempt to exert control in Hong Kong, although the U.S. government did not suggest the imposition of further economic sanctions.

The markets posted solid gains for the week, led by the Global Dow, pushed ahead by growing economic hopefulness in both Europe and Asia. The Dow gained nearly 4.0%, followed by the S&P 500, the small caps of the Russell 2000, and the tech stocks of the Nasdaq. Year to date, the Nasdaq is close to 6.0% ahead of its 2020 starting point, while the S&P 500 is quickly closing the gap.

Crude oil prices vaulted ahead again last week. The price of gold (COMEX) rebounded last week. Gas at the pump continues to rise.

Last Week’s Economic News

  • The gross domestic product decreased at an annual rate of 5.0% in the first quarter of 2020, according to the Bureau of Economic Analysis. The GDP increased 2.1% in the fourth quarter. Real gross domestic income decreased 4.2% in the first quarter, in contrast to an increase of 3.1% in the fourth quarter. The price index for gross domestic purchases increased 1.7% in the first quarter, compared with an increase of 1.4% in the fourth quarter. Consumer prices increased 1.3% in the first quarter, compared with an increase of 1.4% in the fourth quarter.

  • Inflationary pressures remain low, while personal income soared in April, according to the latest figures from the Bureau of Economic Analysis. Personal income and disposable personal income increased 10.5% and 12.9%, respectively. The increased income didn’t translate to increased consumer purchases, however. Personal consumption expenditures dropped 13.6% in April.

  • The advance report on international trade in goods revealed a deficit of $4.7 billion in April, 7.2% greater than the deficit in March. Exports decreased 25.2% last month. Imports fell 14.3% from March. Exports and imports for automotive vehicles fell dramatically, declining 68.5% and 55.2%, respectively.

  • Sales of new single-family homes rose in April, according to the latest report from the Census Bureau. However, new home sales are down 6.2% from April 2019. The estimate of new houses for sale at the end of April was 325,000. This represents a supply of 6.3 months at the current sales rate.

  • New orders for manufactured durable goods in April decreased 17.2%. This decrease, down three of the last four months, followed a 16.6% March decrease. Excluding transportation, new orders decreased 7.4%. Excluding defense, new orders decreased 16.2%. Transportation equipment, also down three of the last four months, led the decrease, down $23.9 billion, or 47.3%. Shipments of manufactured durable goods in April, down three of the last four months, decreased $41.5 billion, or 17.7%. Unfilled orders for manufactured durable goods in April, down two consecutive months, decreased $17.5 billion, or 1.6%. Inventories of manufactured durable goods in April, up two consecutive months, increased $0.7 billion, or 0.2%. On the other hand, nondefense new orders for capital goods in April increased $3.8 billion, or 8.2%.

Eye on the Week Ahead

Key economic data out this week focuses on the employment numbers for May. April saw 20.5 million jobs lost and an unemployment rate that soared to 14.7%.




Robert G. Carpenter

President & CEO
Baltimore-Washington Financial Advisors