As we begin to reopen parts of our economy that were closed due to coronavirus, uncertainty endures. Opinions of the severity of the virus, how to control its spread, and how or when to allow people to resume their lives remain widely diverse. Not surprisingly, opinions about the economic impact of the virus are equally diverse. While the economic foundation that led the U.S. economy to a record long expansion remains in place, recent events, especially recent political and domestic unrest, could make a quick recovery even more difficult. Some economic indicators, after dropping to historically significant depths, have reversed course and are gradually improving. The ISM Manufacturing Survey is higher at 43.1, up from its low of 41.5, but still well below the neutral level of 50. Initial jobless claims at end of May came in at 2.1 million, showing consistent, yet gradual weekly improvement from the 3.8 million reported at the end of April. However, some statistics, like the unemployment rate, which was reported at 14.7% for April, provide true insight into the depth of agony being levied on the U.S. working population. As could be expected, consumer spending declined in lockstep with the rise in unemployment, with April Personal Consumption declining by 13.6%. Indeed, these are difficult times for many, but as we endeavor to rebuild that which was lost, we should remember not to lose hope.
While opinions of equity valuations also vary greatly, bulls or bargain hunters currently outnumber pessimistic minded investors, as stock prices continued their climb, despite the present climate. May equity markets saw all major sectors of the domestic market and all major indices showing gains. Leading performance once again was the technology laden NASDAQ Index. However, more breadth was evident in May with all indices, except Emerging Markets, posting strong monthly numbers. Sector performance saw the Materials sector taking its turn beside the consistent performance driving Technology Sector. On a year-to-date basis, only four sectors and one index, the NASDAQ, show positive returns thus far. Yet, considering where we have been, markets are proving quite resilient.
Bond investors continued their foray into spread based product in May, seeking any justifiable yield over and above current the Treasury market. With the Fed Funds rate at zero, and Treasury rates across the maturity spectrum at levels that offer neither significant total return possibilities nor yield, investors swapped this debt for better prospects. This exit from the Treasury market led the Treasury Master Index to lag bond indices for May, although YTD performance for this sector remains stellar. Following the lead, and apparent optimism, of equity investors, corporate debt became the bond of choice in May. Subsequently, returns in both investment-grade (1.75%) and high-yield (4.57%) corporate debt set the pace for the month.
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