Market developments and recovery progress for May 20

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

The latest market and economic developments:

  • Stocks pulled back Tuesday after a massive Monday rally, but the major US indexes were higher early Wednesday as more states move to reopen.
  • Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on the future of the US economy. While Mr. Mnuchin stressed the importance of getting commercial activity up and running, Mr. Powell reiterated his view that more congressional support may be needed while the world awaits a vaccine.1
  • The second quarter may be the worst in US economic history: The Congressional Budget Office forecasts a 38% decrease in GDP for Q2, but sees a recovery beginning in the second half of 2020, with job growth materially improving in the third quarter.2
  • France and Germany proposed a €500 billion recovery fund that would help support the European Union, particularly those countries hit hardest by the pandemic. While the plan would need backing from all 27 members, it signifies a unified step from two of Europe’s largest economies.3

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

  • As of Wednesday, all 50 states are in the process of reopening.4 Connecticut became the last state to loosen stay-at-home orders on May 20 when it allowed retailers and restaurants to open. Other states are taking additional steps to relax restrictions. Texas announced that workers could return to offices in limited capacity and childcare services could resume immediately.5
  • US air travel is showing signs of life. Southwest Airlines reported bookings are outpacing cancellations, while United is seeing a slowdown in cancellations and a modest pickup in domestic and some international routes. American Airlines said it’s filling more seats on flights.6
  • New York City is tracking toward an early June reopening, according to Mayor Bill de Blasio.7 New York state’s outbreak has slowed to levels not seen since late March, with virus-related deaths, hospitalizations, and new infections steadily declining.8

Food for thought:

With retail earnings in the spotlight this week, the uncertainty of the pandemic still looms. Even as big-box brands like Walmart, Target, and Lowe’s prove some pockets of the industry can prosper while customers stay at home, increasing costs associated with hazard pay and safety precautions are weighing on profits.9 Also, despite having the benefit of being deemed an “essential” business, household staples and home improvement companies are still pulling guidance as shifting consumer spending habits make forecasting difficult. 

Later today investors will be sifting through the minutes from the Federal Reserve’s April meeting for policy makers’ views on additional monetary support and negative interest rates—the latter a topic markets still appear to be debating despite several attempts from Chairman Powell to dismiss the idea. 

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

  1. The Wall Street Journal, “Powell, Mnuchin Outline Contrasting Perils Facing Economy,” 5/19/20, https://www.wsj.com/articles/powell-mnuchin-set-to-face-lawmakers-over-crisis-lending-programs-11589880602
  2. CNBC, “CBO projects 38% drop in GDP, $2.1 trillion increase in the deficit,” 5/19/20, https://www.cnbc.com/2020/05/19/cbo-projects-38percent-drop-in-gdp-2point1-trillion-increase-in-the-deficit.html
  3. Bloomberg, “Merkel Offers Breakthrough Deal to Shield EU From Virus Fallout,” 5/18/20, https://www.bloomberg.com/news/articles/2020-05-18/merkel-offers-breakthrough-deal-to-shield-eu-from-virus-fallout
  4. CNN, “All states are partially reopen leaving Americans to weigh the risk of venturing out again,” 5/20/20, https://www.cnn.com/2020/05/20/health/us-coronavirus-wednesday/index.html
  5. The New York Times, “Autoworkers return to factories as states ease restrictions,” 5/18/20, https://www.nytimes.com/2020/05/18/us/coronavirus-updates.html?action=click&campaign_id=57&emc=edit_ne_20200518&instance_id=18592&module=Spotlight&nl=evening-briefing&pgtype=Homepage&regi_id=76161369&segment_id=28355&te=1&user_id=5907a09bfb75dbf35537993d15f86005#link-2f147cbf
  6. Bloomberg, “U.S. Airlines Show Signs of Life After April Travel Collapse,” 5/19/20, https://www.bloomberg.com/news/articles/2020-05-19/southwest-shows-signs-of-life-with-bookings-above-cancellations
  7. The New York Times, “N.Y.C. remains weeks away from any reopening,” 5/18/20, https://www.nytimes.com/2020/05/18/nyregion/coronavirus-new-york-update.html?campaign_id=154&context=menu&emc=edit_cb_20200518&instance_id=18595&module=STYLN_live_tabs&nl=coronavirus-briefing&pgtype=Article&regi_id=76161369&region=header&segment_id=28360&state=default&te=1&user_id=5907a09bfb75dbf35537993d15f86005&variant=1_menu#link-142d91d3
  8. CNBC, “New York’s coronavirus outbreak is back to where it started, Gov. Andrew Cuomo says,” 5/19/20, https://www.cnbc.com/2020/05/19/new-yorks-coronavirus-outbreak-is-back-to-where-it-started-gov-andrew-cuomo-says.html
  9. CNBC, “Lowe’s shares soar after same-store sales surge 11.2%,” 5/20/20, https://www.cnbc.com/2020/05/20/lowes-low-earnings-q1-2020.html

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