The markets staged a substantial rally this week despite dismal economic and earnings news as traders anticipated the reopening of the U.S. economy. However, we believe that the reopening will be spotty and gradual, as manufacturing supply chains are disrupted and infection rates come down slowly. A record high unemployment rate was hit in April in records going back to 1939. While some jobs may come back quickly, it remains to be seen how quickly demand for goods and services recover.
Tensions with China cooled somewhat as U.S. and Chinese trade negotiators pledged to improve cooperation on public-health and implementation of the Phase 1 trade deal.
House Democrats are working on additional stimulus measures including new aid for states and cities plus additional money for households. However, President Trump has said that formal negotiations will not start until late May or early June to get a better read on what is needed.
Interestingly, China initially held off on large amounts of stimulus with officials questioning if traditional stimulus measures would work with the coronavirus restrictions. Now, they are seeing very gradual recovery without large measures like they used in the financial crisis.
Treasury yields rose with the 30-year bond ending at 1.387% and the 10-Year note at 0.682%. Crude oil rose to $24.83 and natural gas fell to $1.829 per MMBTUs. The U.S. dollar rose against a basket of currencies and gold prices rose to $1708.10 an ounce.
In economic numbers this week:
- The Institute for Supply Management reported unprecedented contractions in manufacturing and services:
- U.S. manufacturing purchasing managers index (PMI) fell from 48.5 in March to 36.1 in April.
- U.S. services PMI fell from 39.8 in March to 26.7 in April.
- Eurozone’s manufacturing PMI fell from 44.5 in March to 33.4 in Ap.ril.
- Eurozone’s services PMI fell from 29.7 in March to 13.6 in April
- Japan’s manufacturing PMI fell from 44.8 in March to 41.9 in April.
- China’s manufacturing PMI fell from 50.1 in March to 49.4 in April on weak exports. China’s manufacturing PMI bottomed at 40.3 in February.
- The Commerce Department reported
- The U.S. trade deficit rose 11.6% in March. Both imports and exports fell. This follows two months of declines.
- Factory orders fell 10.3% in March. The durable goods portion of factory orders fell 14.7%.
- Eurostat reported that Eurozone retail sales fell 10.4% in March. This follows a 0.6% increase in February.
- China reported that exports rose 3.5% in April from a year earlier following a 6.6% increase in March. The increase had more to do with a backlog of orders than new orders for exports and most exports were to Southeast Asia.
- The Labor Department reported
- 3.2MM workers filed unemployment claims last week. A total of 33.5MM have filed for unemployment since the virus outbreak.
- U.S. productivity fell at a 2.5% annual rate in the first quarter.
- The U.S. lost 20.5 million jobs in the month of April. The previous largest monthly loss was 2MM jobs in one month in 1945.
- The unemployment rate rose to 14.7% in April, the highest in records starting in 1939.
- Average hourly earnings rose 4.7% in April and 7.9% from a year earlier as job losses were concentrated in lower wage jobs.
- Factset reported that with 88% of the S&P 500 Q1 earnings reporting, the blended earnings decline is 13.6% from Q1 2019. Estimates for upcoming Q2 earnings (to be released beginning in July) fell 28.4% in April.
- The EIA weekly oil report is here wpsrsummary. Also, the EIA reported in the past week:
- Field production of crude oil dropped from 12.1MM barrels to 11.9MM barrels per day.
- Natural gas storage rose by 109BN cubic feet and is above the five year average at this time of year.
- Baker Hughes reported the number of active oil rigs fell 33 to 292 and the number of active natural gas rigs fell 1 to 80.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith AIF®
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.