June Economic Update
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)