Market developments and recovery progress for May 13

A perspective from E*TRADE Capital Management, LLC 05/13/20

The latest market and economic developments:

  • US stocks fell in early trading Wednesday as Federal Reserve Chairman Jerome Powell dismissed the possibility of negative interest rates despite pressure from President Trump.
  • Stock market volatility has fallen to its lowest level since February. The Cboe Volatility Index (VIX), which serves as the stock market’s fear gauge, fell to 27.6 on Monday—down from its March 16 record close of 82.7.1
  • Democrats in the House of Representatives unveiled a new $3 trillion coronavirus relief bill, which includes additional aid for state and local governments, a second round of payments to Americans, and an extension of unemployment benefits. However, the Senate is not expected to pass the bill, as Republican leaders have voiced concerns about more immediate federal spending.2
  • The Federal Reserve launched its corporate bond-buying program on Tuesday, part of the emergency stimulus efforts it announced in March. In this first phase, the Fed will purchase corporate bond exchange-traded funds (ETFs) to help support the flow of credit in the debt market.3
  • Labor Department figures showed the core consumer price index (CPI), which excludes food and energy, fell by 0.4% in April—the sharpest decline on record. Overall, the CPI fell by 0.8%, the most since December 2008.4

And here are the most recent updates on our path toward recovery:

  • Daily new coronavirus cases and related deaths for the US as a whole appear to be flattening,5 even as testing capacity ramps up.
  • Parts of New York will begin reopening this weekend, with three regions in the state meeting all seven criteria for phase one. New York City, however, will likely remain under stay-at-home orders until June.6
  • New cases in Georgia have been relatively stable, even after the state lifted its lockdown two weeks ago. Experts have cautioned it may still be too early to see the full impact, though.7

Food for thought:

This morning’s remarks from the Fed Chairman were a reality check for a market that has been pinning its hopes on an economic reopening and a relatively quick recovery. While noting the strength of fiscal and monetary stimulus efforts thus far, Jerome Powell cautioned they may not be enough to counter the downside risks that still exist amid the uncertainty of the virus.8

That said, market watchers may be encouraged by Powell’s unwavering commitment to deploying the full range of Fed weapons to combat the pandemic, his belief in the economy’s long-term ability to recover, and his firm stance on avoiding negative interest rates.

Although the market has proved resilient in recent weeks—it’s up roughly 2% for the trailing one-year period—investors should proceed with caution as we still do not fully understand the lasting impact of the coronavirus and what it may mean earnings and profitability going forward.

Bottom line: Stay the course and keep investing decisions focused on individual timelines, long-term goals, and risk tolerance.

  1. The Wall Street Journal, “Market Volatility Recedes to Lowest Level Since February,” 5/11/20, https://www.wsj.com/articles/market-volatility-recedes-to-lowest-level-since-february-11589212535
  2. CNBC, “House Democrats unveil new $3 trillion coronavirus relief bill,” 5/12/20, https://www.cnbc.com/2020/05/12/coronavirus-updates-house-democrats-unveil-3-trillion-relief-bill.html
  3. MarketWatch, “Fed kicks off its buying of corporate debt ETFs,” 5/12/20, https://www.marketwatch.com/story/fed-kicks-off-its-buying-of-corporate-debt-etfs-2020-05-12
  4. Bloomberg, “U.S. Core Consumer-Price Index Fell by Most on Record in April,” 5/12/20, https://www.bloomberg.com/news/articles/2020-05-12/u-s-core-consumer-price-index-posts-record-0-4-monthly-decline
  5. The New York Times, “Five Ways to Monitor the Coronavirus Outbreak in the U.S.,” 5/13/20, https://www.nytimes.com/interactive/2020/04/23/upshot/five-ways-to-monitor-coronavirus-outbreak-us.html?campaign_id=9&emc=edit_nn_20200513&instance_id=18435&nl=the-morning&regi_id=76161369&segment_id=27511&te=1&user_id=5907a09bfb75dbf35537993d15f86005
  6. The New York Times, “Parts of Upstate New York Could Reopen This Weekend,” 5/11/20, https://www.nytimes.com/2020/05/11/nyregion/coronavirus-new-york-update.html?action=click&campaign_id=57&emc=edit_ne_20200511&index=2&instance_id=18401&label=new+york&module=Spotlight&nl=evening-briefing&pgtype=Homepage&regi_id=76161369&segment_id=27327&te=1&type=styln-live-updates&user_id=5907a09bfb75dbf35537993d15f86005#link-3ced1923
  7. The New York Times, “Louisiana joins the ranks of states that are reopening some businesses,” 5/11/20, https://www.nytimes.com/2020/05/11/us/coronavirus-updates.html?action=click&campaign_id=154&emc=edit_cb_20200511&instance_id=18403&module=Spotlight&nl=coronavirus-briefing&pgtype=Homepage&regi_id=76161369&segment_id=27333&te=1&user_id=5907a09bfb75dbf35537993d15f86005#link-429da9ad
  8. CNBC, “Powell says more policy help may be needed to pull the US out of economic downturn,” 5/13/20, https://www.cnbc.com/2020/05/13/feds-powell-says-more-policy-help-may-be-needed-to-pull-the-us-out-of-economic-downturn.html

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