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Manufacturing and Consumer Sentiment Surprise to the Upside

Weekly Update – May 15, 2020

  • Stocks posted weekly losses as declining economic conditions, elevated volatility and rising trade-tension risk weighed on sentiment. Nonetheless, markets partially recovered Friday as April industrial production and May manufacturing and consumer sentiment came in better than expected.
  • Weakening consumer sentiment sent U.S. Treasury yields down. The ten-year yield finished at 0.65%, from 0.68% the week before; yields declined across the curve except among T-bills.
  • Commodities futures were mixed: oil and precious metals rose but copper and others fell. The U.S. dollar continued to climb against a basket of major currencies.
  • With 91% of S&P 500 companies reporting first-quarter results, 66.5% have exceeded earnings per share expectations, while 59.3% have beaten revenue expectations. As of May 15, 2020, Refinitiv estimated the S&P 500 index’s first-quarter earnings growth rate at -12.1% and its 12-month forward P/E ratio at 22x. Cisco Systems, Tencent Holdings and Vodafone impressed; Adaptive Biotechnologies, Hertz Global Holdings and Virtusa disappointed.
  • U.S. retail sales fell a record 16.4% in April. Sales fell at grocery stores, bars and restaurants, furniture and electronics stores; hardest hit was clothing, which plunged 78.8%. By contrast, non-store retailers grew 8.4%.
  • Surprisingly, the University of Michigan survey of U.S. consumer sentiment rose to 73.7 in May after plummeting to 71.8 in April. The survey attributed the rise to stimulus checks helping consumers’ finances and widespread price discounting. The current economic conditions index jumped to 83.0 in May from 74.3 in April, whereas consumer expectations fell to 67.7 from 70.1. Reinforcing the latter, the New York Fed’s April survey of consumer expectations found that 31.6% of respondents expected to be worse off financially in a year.
  • The general business conditions index of the Empire State Manufacturing Survey climbed 30 points in May but remained far below zero at -48.5. New orders and shipments, inventories and employment levels fell further in May. Separately, the Federal Reserve reported that U.S. industrial production fell 11.2% in April, the steepest monthly drop on record.
  • Initial jobless claims for the week of May 7 came in at 2.98 million, the eighth consecutive week in the multi-millions but a decrease from the prior week’s 3.18 million.

CPWM Weekly Market Monitor (2020.05.15)

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