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Stocks Finish Strong Week, Yields Mixed as Fed Expects to Keep Rates Low

Weekly Update – May 22, 2020

  • Stocks finished a strong week higher as optimism for a potential coronavirus vaccine and the reopening of the U.S. economy won out over renewed U.S.- China geopolitical tensions and the ongoing deterioration of the U.S. labor market. The Dow Jones Industrial Average rose 3.4%, its best weekly gain since early April, while the S&P 500 and Nasdaq increased 3.2% and 3.4%, respectively.
  • With stocks generally stronger U.S. Treasury yields ended the week mixed; the two-year yield was up 2 bps to 0.17% and the 10-year yield was down 2 bps to 0.66%.
  • Oil prices snapped a six-session gaining streak and declined on Friday after China refrained from issuing an annual economic growth target for 2020, the first time in over 25 years.
  • Initial jobless claims for the week ending May 21 were 2.44 million, the 10th consecutive week in the multi-millions but a decrease from the prior week’s 2.68 million.
  • Minutes from the FOMC’s April meeting indicated that the Federal Reserve expects to hold the overnight interest rate in its current target range of 0.0-0.25% until the economy has weathered recent events, but also that it is nonetheless on track to achieve employment and inflation goals. However, the Fed does consider the corona virus to be a substantial risk over the near-to-medium-term. Meeting participants agreed that the Fed is committed to using a full-range of tools to support the economy.
  • Federal Reserve Chair Powell in an interview said that the Fed has not exhausted its options and that there is plenty the central bank can do with its lending programs. He said existing credit programs could be enlarged, and that new lending programs could be added. Powell also reiterated the Fed’s resistance to negative interest rates.
  • May IHS Markit flash manufacturing PMI increased 3.7 from April to 39.8, the highest mark in two months and better than the 37.9 consensus estimate.
  • Existing home sales fell 17.8% in April, the biggest monthly decline since July 2010, at a seasonally adjusted annual rate of 4.33 million. Furthermore, housing starts dropped 30.2% in April from March, the biggest decline on record.

CPWM Weekly Market Monitor (2020.05.22)

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