by Maurice (Mo) Spolan, Investment Research Analyst
The S&P 500 touched positive year-to-date performance this past week; however, the levels proved ephemeral as Thursday’s large leg down took the index below where it began 2020. Four of the 25 worst market days in history have now occurred in the past three months, according to Michael Batnick of Ritzholz Wealth Management. It is often futile to speculate upon what causes grandiose single-day market moves, such as what we saw Thursday; nonetheless, it appears in this instance that investors were off-put by Fed Chair Jay Powell’s somber economic outlook concurrent with rising COVID-19 cases in several states which have recently relaxed social distancing measures.

Several authoritative institutions released troubling economic forecasts last week, as the Fed, the World Bank and the OECD all reiterated that 2020 will represent one of worst downturns in modern times. To counter, Chairman Powell shared that the FOMC is “not even thinking about thinking about raising rates.” This exemplifies the seesaw between novel monetary policy and extraordinary economic conditions that is likely to steer asset prices for the visible future. The present climate is so unusual in that the key variables determining economic health – virus-related shutdowns and the corresponding monetary stimulus – are both inorganic mechanisms; a massive external shock has been met with a previously unimaginable flood of money into the financial system. We continue to observe the phenomena closely in order to best align long-term financial plans with the ongoing developments.

by Maurice (Mo) Spolan, Investment Research Analyst
The U.S. stock markets rallied last week, spurred by an employment update which indicated that the U.S. economy added 2.5 million jobs in April, the largest monthly increase since at least 1939. Approximately half of the job gains were the result of furloughed workers returning to their posts, particularly in the travel & leisure sector of the economy. The job number arrives in stark contrast to economists’ expectations, which anticipated that the unemployment rate would expand to near 20% upon the report’s release. While April’s job statistic was a positive surprise, U.S. unemployment remains historically high, at 13.3%.

Since March’s lows, U.S. equity markets have staged their most prodigious 50-day increase of all time, up over 40%. The major indices now rest within a handful of percentage points of their all-time highs achieved in February. It is confounding for many to witness stocks rise amidst a pandemic and the considerable domestic and international political tensions now present. To provide some explanation for this apparent dichotomy, we offer two thoughts. First, a stock price reflects the future profits of the company to which the stock corresponds. Because of this, news and developments are only incorporated into stock prices to the extent they impact company profits. Therefore, events which may be significant in many respects, but do not affect companies’ fortunes, will not play a role in setting stock prices. Second, in the period of time since COVID-19 has proliferated, interest rates have fallen dramatically. Because interest rates are now lower, bonds are less attractive to investors, and as a corollary, stocks look more enticing. In turn, investors have been buying stocks, and stock prices have risen.