Equity markets advanced last week with the S&P 500 returning nearly two percent as investors tracked data on the gradual reopening of the US economy that continued to be “less bad”.  For example, despite initial unemployment claims being above one million for the 13^th week in a row, the initial claims continue to decline week-over-week, and those with continuing claims have been modestly declining as well since mid-May, though the number remains above 20 million Americans.

The National Association of Home Builders / Wells Fargo Housing Market Index posted its largest monthly gain in history, jumping from 21 in May to 58 in June as low interest rates, tight supply and pent-up demand provided a boost for the housing market.  Mortgage applications to purchase a new home were up 11% year-over-year in May.[1]  Similarly, May US retail sales posted their largest month-over-month gain in history, jumping 18% from April with much of the gains coming from automobile, gasoline, and restaurant sales.[2]  And, perhaps most importantly, the number of new weekly deaths resulting from the COVID-19 virus has continued to decline (Chart 1) despite an increase in new confirmed cases (Chart 2).  This trend may imply that testing and treatment efforts have improved.

Chart 1: Daily Reported COVID-19 Deaths in the US

Chart 2: Daily Reported COVID-19 Cases in the US

Despite the cautious optimism from market participants, Federal Reserve Chairman, Jerome Powell, articulated to Congress as part of his two-day testimony the potential for long-term damage to the economy and risks of the current recovery stemming from the COVID-19 virus that is not yet contained.  If the virus were to remain under control, Mr. Powell believes that the economy may be in the beginning of a recovery, but he cautioned that a return to pre-pandemic levels of employment and economic output may be challenging to achieve for some time.  “There are parts of the economy that will struggle to return to their old ways of activity,” Chairman Powell said, and he noted that additional support for workers in industries like entertainment, travel, and hospitality may be appropriate for some time.  He also pointed out the potential for second-order effects of the recession such as the need for states and municipalities to eventually lay off their employees as tax revenues decline.

Key Economic Releases This Week

Source: Marketwatch

Asset Class Returns

Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 19, 2020

Prices & Interest Rates

Source: Morningstar, Bloomberg, US Treasury (total returns shown gross of fees)
As of June 19, 2020

[1] https://www.cnbc.com/2020/06/16/coronavirus-update-homebuilder-sentiment-posts-biggest-monthly-surge-ever.html

[2] https://www.cnbc.com/2020/06/16/us-retail-sales-may-2020.html