Entering the trading week, the market was met with a variety of rather gloomy coronavirus headlines and US stocks felt rather fatigued, but despite all of the obvious reasons for pessimism, stocks continued to be quite resilient and finished the week with consecutive up days. Around 2013, a favorite cliché for investors was that stocks were “climbing a wall of worry” as the S&P 500 batted away concerns such as the fiscal cliff, as it was dubbed at the time, or the tapering of quantitative easing. Well today’s wall of worry makes the concerns of 2013 look like a proverbial ant hill and we are officially bringing the phrase back. For example, once again Thursday’s weekly jobless claims came in around 3M and once again stocks finished that day over 1% higher. This morning retail sales for April indicated the largest monthly decline in US history, while trade tensions heated up with China threatening US companies if Chinese firms become blocked from certain US technology.
Stocks initially opened Friday morning firmly lower, but optimism was undeterred, and the S&P 500 steadily climbed to finish slightly higher. Earning have also been shrugged off with first quarter S&P 500 earnings on pace to fall almost 14%, while second quarter earnings are now expected to fall over 40% (per FactSet)! Despite all of this, stocks finished the week only about 2.5% lower, albeit the worst weekly return in almost two months, but the S&P 500 has maintained the vast majority of its strong rebound off the March 23 lows.
Going forward, the combination of optimism around reopening, coupled with record fiscal and monetary stimulus will continue to underpin the bull thesis. The bear “wall of worry” mostly revolves around the potential for a second wave of infections, a longer economic recovery, renewed tensions with China, and significantly less corporate stock buybacks. We remain very cautious in this incredibly uncertain time, but if stocks wanted to move meaningfully lower this week, they certainly had legitimate reasons. Markets that do not go down on seemingly bad news are hard to call a bear market and it will be very interesting to monitor the economic reopening news flow over the weekend as well as a variety of housing data throughout next week.
Coming up next week:
NAHB Housing Market
Philadelphia Fed Index
Markit PMI Manufacturing
Markit PMI Services
Existing Home Sales
Ian Browning | Director, Investment Strategies & Shareholder
Peter E. Simmons | President & CEO