Weekly Market Update, May 26, 2020


General Market News            

Equity Index





S&P 500





Nasdaq Composite















MSCI Emerging Markets





Russell 2000





Source: Bloomberg, as of May 22, 2020


Fixed Income Index




U.S. Broad Market




U.S. Treasury




U.S. Mortgages




Municipal Bond




Source: Morningstar Direct, as of May 22, 2020


What to Look Forward To 

We started the week with Tuesday’s release of the Conference Board Consumer Confidence Index for May. Confidence rose from a downwardly revised 85.7 in April to 86.6 in May. This result was slightly worse than expectations for an increase to 87, but it is still a step in the right direction. Confidence stabilizing as the country begins to reopen indicates that consumers are likely optimistic that the reopening efforts will be successful as we head into the summer. Consumer expectations for the future increased during the month; however, views of the present condition worsened modestly. Overall, this was a largely positive report, as it indicates that consumer confidence may have bottomed in April and could be set to rebound as states reopen. This will continue to be a widely monitored data report, as hopes of a swift economic recovery largely rely on a quick rebound for consumer confidence and spending.


Tuesday also saw the release of April’s new home sales report. New home sales came in much better than expected, increasing modestly from a downwardly revised annual rate of 619,000 in March to 623,000 in April, against forecasts for a fall to 480,000. Despite this better-than-expected performance during the month, the pace of new home sales is still down notably from the recent high of 717,000 set in January. Last year saw strong growth in new home sales, and this momentum continued into the start of 2020 before the pandemic hit. Looking forward, the slowdown in new home construction in March and April will likely serve as a headwind for future new home sales due to lowered supply in key markets.


On Thursday, the second estimate of first-quarter gross domestic product (GDP) growth is set to be released. Economists expect to see the annualized growth rate for the quarter remain unchanged at –4.8 percent. Personal consumption, which was the major driver of GDP growth in 2019, is expected to improve slightly to a 7.4 percent annualized decline during the quarter, from an initial estimate of a 7.6 percent decline. Even if this anticipated improvement in consumption holds true, this would still represent the worst quarter for personal consumption since the second quarter of 1980. Although these very weak growth figures are concerning, they are likely just the tip of the iceberg, as economists are currently forecasting a 33.5 percent annualized contraction for the economy in the second quarter.


Thursday will also see the preliminary estimate of durable goods orders in April. Orders are set to decline by 18 percent in April following a 14.7 percent drop in March. Much of the March drop in headline orders was due to a sharp decline in volatile aircraft orders; however, that is not expected to be the case in April. Core durable goods orders, which strip out the effect of volatile transportation orders, are expected to fall by 15 percent during the month, significantly worse than the modest 0.4 percent decline we saw in March. Core durable goods orders are often used as a proxy for business investment. So, if estimates hold, it would indicate that already weak business spending in the first quarter only worsened to start the second quarter.


The third major data release on Thursday will be the weekly initial jobless claims report for the week ending May 23. Economists currently expect 2 million additional Americans filed initial claims during the week. Depending on the revision to the prior week’s report due to the Massachusetts reporting error, this result may end up being a slight increase in initial filings during the week if estimates hold. As we’ve seen over the past two weeks, however, this data is certainly not perfect, and it’s important not to place too much emphasis on week-to-week changes. Rather, the focus should be on the general trend, which has been downward for the past seven weeks, indicating that the worst is likely behind us. We will continue to monitor this weekly update until we see sustained progress in getting weekly initial claims closer to historical levels.


On Friday, April’s personal income and personal spending reports are set to be released. Both of these reports are expected to show historically bad results for the month. Incomes are set to fall by 7 percent, while spending is expected to decline by 12.6 percent. If estimates prove to be accurate, this would be the worst month for both reports on record. While the sharp drop in spending is certainly concerning, the anticipated income decline is also worrisome, as it could hinder a return to faster spending growth as states begin to reopen. April’s retail sales report came in worse than expected, and a similar result for personal spending would serve to reemphasize the damage that the measures to combat the spread of the coronavirus had on the economy during the month.


Finally, we’ll finish the week with Friday’s release of the second and final estimate of the University of Michigan consumer sentiment survey for May. Economists expect to see the index remain unchanged at month-end, remaining in line with the midmonth estimate of 73.7. If this initial result holds, it would represent a slight improvement from April’s final reading of 71.8, driven by a noted improvement in the current conditions subindex, which rose from 74.3 in April to 83 at the start of May. As is the case with the Conference Board report on consumer confidence, this will be a widely followed release as it will give a glimpse into how consumers are reacting to the easing of shelter-in-place orders as we head into the summer.


Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.



Authored by the Investment Research team at Commonwealth Financial Network.

© 2020 Commonwealth Financial Network®