The stock market continued to rally in May from the lows posted back in March, sparked by a supportive Federal Reserve, the re-opening of several states, and reported progress on a COVID-19 vaccine. Further aiding stocks was a better-than-expected jobs report and firming oil prices.
Many investors breathed a sigh of relief on the news that U.S. and Chinese negotiators were planning to meet, despite the rising tensions between the two nations. The Dow Jones Industrial Average rose 4.2%, while the Standard & Poor’s 500 Index picked up 4.5%. The NASDAQ Composite led, gaining 6.7%. (1)
Federal Reserve Commitments
Minutes from the last Federal Open Market Committee meeting reaffirmed a commitment to maintaining a zero interest rate policy until inflation reaches the Fed’s 2% target, and unemployment returns to its pre-COVID-19 level. The Committee also focused on how they expect to use upcoming meetings to communicate about future policy decisions. The minutes also reinforced recent comments that the Fed was not inclined to move toward negative rates. (2)
Last month, the Fed began purchasing individual bonds and bond ETFs in an effort to stabilize the market until the economy is back on its feet. This is a very controversial move by the organization, as critics point to a balance sheet which now exceeds that of the 2008 financial crisis by approximately six-fold and has caused distortion in market prices. These drastic measures are almost certainty essential to keep our financial system functioning during this unprecedented time in our history.
The World Health Organization reports that there are more than 100 vaccine candidates, with 10 currently participating in clinical trials. Over the next couple months, results from several of these trials may be released. Depending on the results, the trials could provide the markets with a sense of optimism. If they prove disappointing, investors may dread the prospect of a prolonged economic recovery. (3,4,5)
The year 2020 will be a year to remember… or maybe better stated as a year to forget. While the stock market has rallied off the March lows, we are still very much in a recovery at this time. If the reopening of our country is met with a second wave of the COVID-19 virus, the economic impact would be tremendous. On the other hand, any promising news of a vaccine will send the markets higher.
In addition to COVID-19 news, political unrest in our cities, and corporate earnings season around the corner, there will be other matters which will affect economic and market conditions. Since the stock market is forward-looking by approximately six months, it is likely that any developments which impact the upcoming presidential election this fall will begin to have an influence on stock prices.
As always, we remain cautiously optimistic that our country can overcome these challenges, just as we have overcome so many before. Please do not hesitate to contact us if we can be of any assistance.
Monthly Financial Tip:
Updating your will is as important as having one. If you drafted a will years ago, it may likely need some adjustments. Revisit your will often and keep it up to date.
1 - The Wall Street Journal, May 31, 2020
2 - The Wall Street Journal, May 20, 2020
3 - Who.int, May 27, 2020
4 - CNBC.com, May 13, 2020
5 - NBCnews.com, May 8, 2020
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.