Market Perspective for May 22, 2020

Equities rallied this week. The S&P 500 Index, Nasdaq and Dow Jones Industrial Average gained a similar 3.56, 3.40 and 3.29 percent, respectively. The small-cap Russell 2000 increased 7.84 percent.

SPDR Industrial (XLI) climbed 7.30 percent. SPDR Energy (XLE) rebounded 6.74 percent, helped by West Texas Intermediate crude oil’s rally into the low $30s. SPDR Consumer Discretionary (XLY) advanced 5.03 percent as the country began reopening. Several states have opened beaches and parks heading into the Memorial Day holiday.

Economic data was solid. The National Association of Homebuilders’ confidence index climbed to 37 in May, up from 30 in April. Housing starts were at an annualized pace of 891,000 in April. Building permits, a sign of future construction, was much higher than expectations at an annualized 1.074 million.

Initial claims for unemployment continued trending lower, falling to 2.44 million.

Flash PMIs for May showed a rebound in the manufacturing and service sectors. The flash PMI jumped from 26.7 in April to 36.9. If openings continue into June, this number could be back to “normal” fairly quickly.

iShares MSCI EAFE (EFA) rose 3.21 percent this week, while iShares MSCI Emerging Markets (EEM) gained 1.11 percent. iShares China Large Cap (FXI) fell 1.32 percent and iShares MSCI Hong Kong (EWH) slid 4.38 percent after CCP-selected politicians pushed through a draft of a national security law in Hong Kong.

The United States and other nations have threatened a response if the law is implemented as written. Earlier in the week, the Senate passed a bill that will allow for delisting of Chinese securities from U.S. markets. China considers financial information a state secret, thus blocking any investigative audits of its companies by the SEC.

The highlight was Wal-Mart (WMT) reporting a 10 percent increase in sales. It indicated online sales climbed 74 percent. Investors largely priced in the good news into share prices; the company slipped 1.15 percent on the week.

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