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Market Commentary – May 2020

May saw several states and foreign countries ease restrictions put in place in response to the COVID-19 pandemic. As economies slowly picked up momentum, investors grew more confident in stocks, driving values higher. However, investor optimism was kept in check by sobering economic reports and growing tensions between the United States and China.

The unemployment rate reached its highest level since the Great Depression while claims for unemployment insurance soared past 25 million. Economic output lagged in April as expected. Hardest hit were automakers, restaurants, and airlines. The month closed with a speech from President Trump condemning China over the pandemic, Hong Kong, and several other "broken promises."

Despite these issues, investors drew optimism from the possibility that a COVID-19 vaccine is on the horizon, the gradual lifting of lockdowns, and the stimulus efforts in play. While May didn't see the double-digit gains enjoyed in April, the benchmark indexes listed here still managed to post encouraging returns. The tech-heavy Nasdaq led the way, followed closely by the small caps of the Russell 2000, each index ending the month more than 6.0% ahead. The large caps of the Dow and S&P 500 advanced by more than 4.0%, and the Global Dow increased by over 3.25%. Year to date, only the Nasdaq is comfortably ahead of its 2019 closing value. The S&P 500 is less than 6.0% from breakeven, while the other indexes listed here remain well off their year-end pace.

By the close of trading on April 30th, the price of crude oil sank to $19.04 per barrel, well below the March 31st price of $20.35 per barrel. Reeling oil values sent prices at the pump spiraling downward. The national average retail regular gasoline price was $1.960 per gallon on May 25th, up from the April 27th selling price of $1.773 but $0.862 less than a year ago. The price of gold rose by the end of April, climbing to $1,691.00 by close of business on the 30th, up from its $1,591.20 price at the end of March.

Market/Index* 2019 Close Prior Month As of May 29 th Monthly Change YTD Change
DIJA 28,538.44 24,345.72 25,383.11 4.26% -11.06%
NASDAQ 8,972.60 8,889.55 9,489.87 6.75% 5.76%
S & P 500 3,230.78 2,912.43 3,044.31 4.53% -5.77%
Russell 2000 1,668.47 1,310.66 1,394.04 6.36% -16.45%
Global Dow 3,251.24 2,661.71 2,749.85 3.31% -15.42%
Federal Funds 1.50% – 1.75% 0.00% – 0.25% 0.00% – 0.25% 0 bps -150 bps
10-yr Treasury 1.91% 0.62% 0.64% 2 bps -127 bps

*Chart reflects price changes, not total return

Last Month's Economic News

  • In the harshest downturn for American workers in history, employers cut an unprecedented 20.5 million jobs in April and the unemployment rate more than tripled to 14.7%. Joblessness now stands at the most since the Great Depression era of the 1930s after the coronavirus pandemic brought the US economy to a standstill. As recently as February, the rate hovered at just 3.5%, the lowest level in five decades. Furloughed workers accounted for about 4 out of every 5 unemployed Americans. The Labor Department said the unadjusted unemployment rate in April would have been almost 5 percentage points higher if unemployed workers had properly classified themselves, rather than marking down that they were employed but absent from work.
  • Productivity in the US declined in the first quarter by the most since the end of 2015, as the world’s largest economy shrank faster than employers cut jobs and hours because of the coronavirus pandemic. Nonfarm business employee output per hour decreased at a 2.5% annualized rate in the first three months of the year. The decline matched the median projection in Bloomberg’s survey of economists and followed a 1.2% fourth-quarter increase. Output fell at a 6.2% annualized rate, while hours worked declined 3.8%.
  • A key measure of US consumer prices declined in April by the most on record as travel and apparel spending collapsed during the coronavirus pandemic. The core consumer-price index, which excludes volatile food and fuel costs, fell 0.4% from the prior month after a 0.1% decrease in March. That’s the biggest drop in data back to 1957. Compared with April of last year, the core CPI rose 1.4%, the smallest annual gain since 2011. The overall CPI declined 0.8% in April from a month earlier, the most since December 2008, as gasoline prices plunged 20.6%. But the cost of food at home surged 2.6% from the prior month, the most since 1974, as Americans stocked up at the grocery store.
  • US retail sales plunged in April, shattering the prior record set just a month earlier, as the coronavirus pandemic shuttered businesses, spurred layoffs and kept Americans at home. Revenue at retailers and restaurants fell 16.4% in April from the prior month, almost double the 8.3% drop in March which was previously the worst in data back to 1992. A sharp drop-off in consumer spending is one of the main drivers behind estimates for gross domestic product this quarter to post the sharpest drop in records dating back to 1947. All but one of 13 major categories decreased, led by a 78.8% drop at clothing stores and a 60.6% decline at electronics and appliance stores. The only category to record a gain was non-store sales, including online sellers such as Amazon, which increased 8.4%.
  • US factory production plummeted in April by the most in records back to 1919 as coronavirus-related shutdowns exacted a bigger toll on the economy. Output slumped 13.7% from the prior month after a revised 5.5% decrease in March. Manufacturers in the US were among the first to experience the pandemic’s economic drag as producers fell victim to supply-chain disruptions, a severe weakening in exports market and a drop in domestic demand. Meanwhile, output fell 0.9% at utilities and decreased 6.1% in mining. The Fed’s report also showed capacity utilization, which measures the amount of a plant in use, slid to 64.9%, the lowest in records back to 1967.
  • US job openings plunged in March to lowest level since May 2017 as the Covid-19 pandemic began unleashing its devastating impact on the economy. The number of available positions plummeted to 6.1 million from a revised 7 million in February, according to the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS. The report showed hires declined to 5.2 million in March from almost 5.9 million a month earlier. Separations soared to 14.52 million from 5.6 million, led by leisure and hospitality.
  • Millions more Americans applied for unemployment benefits last week, indicating major job losses are continuing two months after the coronavirus pandemic started shuttering businesses. Initial jobless claims for regular state programs totaled 2.44 million in the week ended May 16th, Labor Department figures showed. The prior week’s figure was revised down by 294,000 to 2.69 million after a clerical error by Connecticut labor officials inflated the overall nationwide figure. Continuing claims, the total number of Americans receiving unemployment benefits, increased to a record 25.1 million in state programs the week ended May 9th. That sent the insured unemployment rate, or the number of people currently receiving unemployment insurance as a share of the total eligible labor market, to 17.2% for that period.
  • US orders for durable goods sank sharply for a second month in April as the coronavirus pandemic wreaked havoc on the manufacturing industry. Bookings for goods meant to last at least three years decreased 17.2%, the most since August 2014, after a revised 16.6% decline in March. Factories in the last two months bore the brunt of the sharp cutback in demand amid the nationwide lockdown. While states have begun letting business reopen, manufacturing will be slow to recover as fewer people shop and businesses rein in capital spending projects. Closely watched capital goods orders, which exclude aircraft and military hardware, dropped 5.8% in April after a 1.1% decrease a month earlier. Shipment of those goods, a proxy for equipment investment in the government’s gross domestic product report, fell 5.4%.
  • US consumer spending, which accounts for about two-thirds of the world’s largest economy, plunged in April by the most on record after the coronavirus pandemic halted purchases of all but the most essential goods and services. Household outlays fell 13.6% from the prior month, the sharpest drop in Commerce Department records back to 1959. Income posted a record 10.5%, increase, compared with estimates for a 5.9% decline, as federal stimulus payments were distributed under the CARES Act. It showed government social benefits rose by $3 trillion in April, up from a $70.2 billion gain the prior month. With the decline in spending, the personal savings rate jumped to a record 33% from 12.7%.

International

  • As more countries relaxed COVID-19 restrictions, economies and stock markets began to slowly show favorable movement. The European Union proposed a 750-billion-euro recovery fund. The news in other countries was not as good. Brazil lost more than one million jobs over the past two months due to the pandemic. Security restrictions from China and the COVID-19 virus have stunted economic growth in Hong Kong. That country's first quarter gross domestic product fell 5.3% from the prior quarter. In China, industrial production continued to recover in April, albeit at a moderate pace.

April's economic data was generally dreary. As more states eased restrictions put in place to help combat COVID-19, May should show a slight uptick in some economic sectors.


The information and opinions in this report were prepared by the ANB Financial Services Division of ANB Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent ANB Financial Services opinion as of the date of this article and are for general information purposes only. ANB Financial Services does not undertake to advise you of any change in its opinions or the information contained in this article. Past performance does not indicate future results. The value or income associated may fluctuate. There is always potential for loss, as well as gain. Trust and Investment Services are not insured by the FDIC, Not a deposit or other obligation of, or guaranteed by, the depository institution subject to investment risks, including possible loss of the principal amount invested.