The stock market returned to its winning ways this week in a broad-based advance led by the mega-cap technology stocks. The Nasdaq Composite led the way with a 6.0% gain that lifted the tech index back into positive territory for the year. The Russell 2000 (+5.5%) was next in line, followed by the S&P 500 (+3.5%) and Dow Jones Industrial Average (+2.6%).
The stock market recovery since the bottom of this Coronavirus pandemic has been nothing short of breathtaking.
Below are three charts of the S&P 500 during the crisis:
The market dropped 34% peak-to-trough, in less than five weeks. BRUTAL.
From the bottom, the market has climbed 31%. In SEVEN weeks.
Clearly we have a ways to go, but this rebound has been mind-blowing. A record number of Americans just lost their job, and yet stocks are moving higher. This seems paradoxical given the economic toll, but as we’ve discussed numerous times in the past, the economic numbers are backward looking while the stock market is forward looking.
And there are times when their paths completely decouple, which is what we are witnessing now.
We were presented with both good and bad news this week, but it was the good news that resonated more with the market as it fueled the reopening/recovery narrative it has been running along with as of late. It didn’t care so much for calls that the market has gotten ahead of itself in pricing in the good news or a statement from Warren Buffett that he hasn’t found any attractive investment opportunities.
The winners kept winning –Apple (APPL), Microsoft (MFST), Amazon (AMZN), Alphabet (GOOG), and Facebook (FB) — and the rest of the broader market simply followed along. Energy stocks did outperform, though, as oil prices continued to rebound on expectations that reopening the economy will boost demand.
From a sector perspective, the energy sector (+8.3%) advanced the most with an 8% gain, followed by the information technology (+6.6%), consumer discretionary (+4.4%), and communication services (+3.7%) sectors, which contain the aforementioned mega-cap stocks. The utilities (+0.5%) and consumer staples (+0.9%) sectors increased the least.
While the reopening process has had its challenges, many laid-off workers are expressing a similar view held by the stock market that things will get better. For instance, April nonfarm payrolls declined by 20.5 million and the unemployment rate rose to 14.7%, but 78.3% of job losers in April categorized themselves as being on “temporary layoff.”
In addition, more companies this week talked about reopening plans and about the improving/stabilizing business conditions, Moderna (MRNA) received FDA approval to proceed to a Phase 2 trial for its COVID-19 vaccine candidate, and weekly initial jobless claims declined by another 677,000 to 3.169 million (Briefing.com consensus 2.900 mln).
Left out of this week’s advance were the airline stocks after Warren Buffett said Berkshire Hathaway (BRK.B) sold its entire stake in the companies, including Delta (DAL), United (UAL), American (AAL), and Southwest (LUV). While there might have been green shoots elsewhere, this was not one of those places.
The U.S. Treasury yield curve steepened this week. The 2-yr yield declined six basis points to 0.14%, while the 10-yr yield increased four basis points to 0.68%. The U.S. Dollar Index increased 0.7% to 99.78.
Source: Briefing Investor