Todd’s Take on the Market
Stocks soared on massive job losses, but we get wobbly on talks of modest reopening. The Dow fell 2.60%, the S&P 500 fell 2.20% and the NASDAQ fell 1.15%.
The market has shown us its clear leadership: Software, Biotech, Semiconductors, Medical Products, select FAANG (Facebook, Amazon, Apple, Netflix and Google). Stay focused on those—you don’t take LeBron James out of the game to put in a lesser player.
Traders and investors are still looking past the declining economic data. U.S. consumer prices fell by 0.8% in April, the biggest drop since the 2008 financial crisis, with decreases led by a huge drop in gasoline prices and from businesses most affected by the coronavirus shutdowns. Core consumer-price inflation, which excludes food and energy, decreased 0.4%, the largest monthly drop in records dating to 1957. The Producer Price Index fell 1.3% in April and this decrease is the largest since the index began in December 2009.
Real average hourly earnings increased 5.6% over the month in April as many well-paid workers can continue to do their jobs from home while lower-paid ones often cannot.
On the jobless front, another 2.98 million filed for unemployment. The BLS data for April showed that 88% of the unemployment was coming from the ranks of production and non-supervisory workers. If that is so through the latest data, just over 30% of production and non-supervisory workers are now unemployed. Overall, we are seeing the slowing of new layoffs and furloughs—but for the very sad reason that employers are running out of people to fire, not because of any economic improvement.
April Retail sales fell 16.4% MoM -16.2% ex-auto/gas. This was much weaker than forecast.
May Empire Manufacturing survey was down 48.5%, but that was stronger than expected—still down 48%.
April industrial production plunged the most on record, down 11.3%, taking out the prior record of -10.4% in August 1945. The prior month was revised to -4.5% vs. -5.4%, slightly better than expected. Factory production was down 13.7%, mining down 6.1% and utilities slightly improved, but still down 0.9%.
Consumer sentiment came in much better than expected—U.S. consumer sentiment inched higher in the early part of May following massive stimulus measures undertaken by the government to sustain the economy amid the coronavirus pandemic, according to data released Friday.
That was last week and as I say, it’s part of history because stocks opened much higher on Monday as a company working on a Coronavirus cure announced very positive test results—albeit, not that many results but all the traders and investors needed to hear was something positive and we got a reaction to the news with the Dow currently up 900 points or almost 4%, the S&P 500 is up 3.28%, the NASDAQ is the laggard only up 2.5%, but the winner on the day, so far, is the Russell 2000, small caps, up 5.74%.
This week, earnings reports are slowly wrapping up, but still, we want to hear from Lowes and Home Depot. We will also get housing starts and existing home sales and I would expect those to be light even though homebuilder sentiment also ticked up slightly. We will also get more manufacturing data and nothing good is expected to come from those reports. So, stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
