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Capital Market Impact Weekly market commentary

Markets remain resilient in the face of a rebound in cases

JUN. 23, 2020


  • Equity markets remain remarkably resilient, delivering gains in four of the previous five weeks despite an inflection higher in coronavirus cases. The recent rally in equities has seen broadening breadth, with more than 97% of the S&P 500 IndexTM trading above the 50-day moving average, the highest level since 2010. Market performance over the past month has been remarkably consistent, with small caps performing in line with large caps and value in line with growth. Improving breadth is encouraging, as it has historically been a sign that a rally is sustainable.
  • Beyond the original recovery, however, companies are betting that cash will be the differentiator between winners and losers. Companies in the S&P 500 boosted their cash and marketable securities by 14% in the first quarter, compared with 4% over the previous three. This was accomplished through cost cutting and debt issuance, providing a cushion of safety to navigate through what is still choppy waters. This group will likely be the leaders after the initial equity rebound is exhausted.
  • While the coronavirus remains the primary market challenge, the relationship with China needs to be closely watched. The growing rhetoric in recent weeks, along with the threat by President Trump to “completely decouple” has been under the radar for most investors, which is a sharp contrast to the market reaction in recent years. While the announcement last week that China will accelerate agricultural purchases was well received, the relationship demands attention, particularly as we approach the presidential election.


  • The U.S. reported more than 30,000 coronavirus cases on both Saturday and Sunday for the first time since May 1, with seven states (FL, SC, NV, MT, UT and AZ) hitting record highs. It is difficult to measure how much the jump is attributed to reopening versus the ramp in testing, but hospitalizations and deaths continue to trend lower.
  • Monetary and fiscal stimulus remain the primary support for the market, with the Fed’s decision to buy individual corporate bonds driving optimism. The words and actions of the Fed have served their purpose, with the balance sheet contracting for the first time since February and some of the other stabilization measures being wound down. The discussion continues around a large infrastructure bill, though details remain elusive.
  • Weeks ago, high-frequency data (reservations, airport traffic, direction requests and retail store traffic) began to turn higher, providing hope for the economy. This is encouraging, though this data lacks reliability due to volatility. Now, official data releases are beginning to confirm the “green shoots.” Retail sales jumped a record 17.7% in May versus -14.7% in April, while the leading economic index spiked 2.8% following declines in March and April. While uncertainty remains around the rebound in cases, the trend in the economy is clearly higher.

What to Watch

  • Key economic data this week includes existing home sales on Monday, PMI services and manufacturing, along with new home sales on Tuesday, durable goods on Thursday, and personal income and spending and consumer sentiment on Friday. We get further revisions to first-quarter GDP on Thursday and the PCE deflator on Friday.

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  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

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