Weekly Market Update - June 19, 2020

Retail Sales Drive Stock Markets Higher as the Fed Promises to Buy More Corporate Bonds and Oil Jumps 10%

• The U.S. stock markets did not erase last week’s losses, but did turn in some very healthy positive numbers for investors

• NASDAQ led the way with a gain of 3.7%, followed by the smaller-cap Russell 2000’s gain of 2.2%, the 1.9% return for the S&P 500 and the 1.0% move for the DJIA

• Most of the 11 S&P 500 sectors ended the week in positive territory, as only 3 were negative with the Utilities sector losing 2.4% and the Energy and Real Estate sectors each losing less than 1%

• Health Care led the other 8 sectors with a 3.1% return on the week, followed by Information Technology (up 2.8%) and Consumer Staples (up 2.4%)

• The markets started the week lower, but on Tuesday the Commerce Department delivered a jolt of great news when it was announced that Retail Sales leapt 17.7% in May, far exceeding expectations

• Initial jobless claims for the week remained uncomfortably high at 1.5 million

• WTI crude futures jumped 10% on the week and ended just shy of $40/barrel

• The 2-year Treasury yield increased to 0.19% and the 10-year yield ended the week where it started

• The U.S. Dollar Index gained 0.4%

Retail Sales Push Markets Higher

Stock markets reversed course from last week and pushed toward higher ground, mostly on the heels of far better-than-expected economic data, especially data that showed retail sales jumped significantly higher than anyone anticipated.

The markets also reacted well to news that the White House is working on a new infrastructure plan that could be worth as much as $1 trillion and the Fed’s promise that it would buy more corporate bonds.

In addition, while initial jobless claims came in at a very uncomfortable 1.5 million, a silver lining was that it did represent 11 straight weeks of improvement.

The markets were somewhat tempered by news reports of increases in new COVID-19 cases, especially in Florida, Arizona and California. Further, news that Apple will be temporarily closing some stores again caused worries of another temporary shutdown that was a dark cloud hanging over markets for most of the week.

Retail Sales Stun the “Experts”

On Tuesday, the U.S. Commerce Department reported that U.S. retail sales surged a whopping 17.7% in May, as consumers returned to shopping and spending. Wall Street was especially cheerful knowing that consumer spending accounts for close to 70% of GDP.

The data from the Commerce Department was stunning since economists surveyed by Bloomberg only expected about an 8% increase and actual numbers were double expectations.

Layer on the fact that May employment numbers revealed that we added 2.5 million jobs – versus a consensus expected loss of jobs of 9 million – it’s no wonder that healthy debate exists as to whether an economic recovery will be V-shaped or U-shaped later this year.

Here is what the Commerce Department released:

• Advance estimates of U.S. retail and food services sales for May 2020 increased 17.7% from the previous month, but are 6.1% below May 2019

• Retail trade sales were up 16.8% from April 2020, but 1.4% below last year

• Non-store retailers were up 30.8% from May 2019, while building material and garden equipment and supplies dealers were up 16.4% from last year

While the 17.7% jump received all the headlines – and rightly so since it was the biggest retail sales gain since 1992 – consider this additional data further buried in the Commerce Department’s release:

• Clothing and clothing-accessories stores jumped 188%;

• Furniture and home-furnishing sales jumped 90%;

• Stores focused on sporting goods, hobbies, musical instruments and books jumped 88%;

• Electronics and appliance stores jumped 51%;

• Motor vehicle sales jumped 44%; and

• Restaurant sales jumped 29%.

More Positive Data

• The Philadelphia Fed Index for June turned positive and it went against consensus expectations as consensus predictions pegged the index at -25.0 and it came in at +27.5

• The Conference Board's Leading Economic Index for May increased for the first time since January

• The NAHB Housing Market Index for June increased to 58 from 37 in May Overseas Markets

• The STOXX Europe 600 Index ended the week 3.3% higher

• Germany’s Xetra DAX Index climbed 3.5%

• France’s CAC 40 Index added 3.2%

• Italy’s FTSE MIB Index advanced 4.0%

• The UK’s FTSE 100 Index rose 2.9%

• Japan’s Nikkei 225 Stock Average moved up 0.8%

• China’s CSI 300 Index gained 2.4%

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Sources commerce.gov; philadelphiafed.org; conference-board.org; nahb.org; dol.gov; census.gov; federalreserve.gov; standardandpoors.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; bloomberg.com