Holbrook Insights

May’s retail sales report was released this week. Sales blew away expectations, increasing by 17.7 percent against forecasts for an 8.4 percent increase. This rebound shows consumers were more than ready to get out and spend as states started reopening. Car sales were a highlight during the month, increasing by more than 40 percent from April; however, even core retail sales, which strip out the impact of auto and gas sales, rose by a better-than-expected 12.4 percent. All things considered, this was a positive report that indicates the economic recovery may be swifter than originally anticipated.

Rates took a bit of a roller coaster ride last week, as the 10-year Treasury yield spiked to as high as 0.93 percent following the previous week’s sell-off in the bond market. In fact, most of last week’s rates came back down just about as fast as they spiked the week before. The 10-year opened at 0.66 percent on Monday. The 30-year reached a high of 1.75 percent over the same time frame, falling to 1.40 percent as of Monday morning. The 2-year, which reached a recent high of 0.23 percent, opened at 0.18 percent.

This week finished with the release of May’s employment report, which came in far above economist estimates. About 2.5 million jobs were added during the month, against expectations for a loss of 7.5 million jobs. This caused the unemployment rate to drop to 13.3 percent from 14.7 percent in April, significantly lower than economist estimates for a rise to 19 percent. It will almost certainly be a long road back to a full economic recovery, but this report showed we are moving in the right direction.

Much of the economic data released in May was backward looking and showed the massive impact anti-coronavirus efforts had on the economy. With that said, there are signs the worst of the economic damage may now be behind us.

Global equities rallied last week, as investors grew optimistic after Dr. Anthony Fauci said a vaccine could be available by November or December. For the second week in a row, value continued to outperform as the positive news saw beaten-down value stocks bounce back. U.S. and China trade tensions picked up again as the U.S. suspended Hong Kong’s special tariff rates following the proposal of a new national security law there. Emerging markets understandably lagged the S&P 500 and Dow Jones Industrial Average for the week, while international markets outperformed amid European reopenings. The top-performing sectors were financials, industrials, REITs, and utilities. Underperforming sectors were communication services, energy, and technology.

Global equities moved lower this past week. Jitters surrounding the restart of the economy as well as increased tensions with China were potential reasons for the sell-off. Trade tensions with China flared as the U.S. placed new export restrictions on semiconductors and Huawei products. Beijing responded with threats to place restrictions on Qualcomm, Cisco, and Apple. The top-performing sectors on the week were health care, consumer discretionary, and communication services. The worst performers included energy, REITs, and industrials. Hotels and airlines were particularly notable pockets during the sell-off in REITs and industrials.

The extremely weak employment situation will likely serve as a headwind against further improvements to consumer confidence, unless large-scale progress is made in returning Americans to work. Consumer confidence will be a widely followed metric over the coming months. Hopes of a swift economic recovery largely rely on a rebound in consumer confidence and spending.

With the start of the new month, we will receive numbers from April, which will give us a better idea of the effects of the quarantine. Interest rate markets have priced in some of the predictions but seem to be waiting for more economic data. 

Equity markets saw a swift recovery in April, as progress toward slowing the spread of the coronavirus gave hope to investors. 

Read the latest market insights, news, and the outlook for the week ahead.