Market Perspective for June 6, 2020

Equities surged this week on strong economic data, including an exceptional unemployment report that showed jobs increased in May. The Dow Jones Industrial Average gained 6.77 percent, the S&P 500 Index 4.90 percent and the Nasdaq 3.35 percent.

SPDR Energy (XLE) shot up 15.69 percent as investors priced in rising inflation. SPDR S&P Regional Banking (KRE) rallied 16.81 percent. SPDR Financial (XLF) jumped 12.18 percent this week as interest rates took off to the upside. SPDR Industrial (XLI) popped 10.50 percent.

The Bureau of Labor Statistics reported 2.5 million jobs were created in May, far better than the 7.5 million decline predicted by economists. As we noted last week, the Department of Labor’s weekly unemployment reports showed unemployment started falling during the week of May 9. The unemployment rate fell to 13.3 percent, below the forecasted 19.0 percent. Average hourly wages fell 1.0 percent as many of the jobs being added are lower wages positions.

The ISM manufacturing index climbed to 43.1 in May, up from 41.5 in April. The services PMI came back even stronger at 45.4 percent. Motor vehicle sales rebounded to an annualized pace of 12.2 million in May, beating expectations.

Crude oil climbed to $39 per barrel on Friday, approaching its 3-month high. iShares U.S. Oil & Gas Exploration & Production (IEO) jumped 9.04 percent on Friday alone. It gained 19.60 percent for the week. First Trust ISE Revere Natural Gas (FCG) added 23.62 percent.

The U.S. Dollar Index fell 1.45 percent this week, despite the European Central Bank ramping up its stimulus plans. iShares MSCI Emerging Markets (EEM) rose 8.43 percent and iShares MSCI EAFE (EFA) 7.04 percent. Resource exporting countries were among the best performers. iShares MSCI Brazil (EWZ) advanced 16.04 percent and iShares MSCI Australia (EWA) 12.51 percent.

Bond yields also rallied as inflation expectations picked up with the strong economic data. iShares 20+ Year Treasury (TLT) fell 4.38 percent on the week. Falling credit risk boost iShares iBoxx High Yield Corporate Bond (HYG) 2.83 percent and Invesco Senior Loan (BKLN) 1.92 percent. Corporate bond funds also were net winners as falling credit risk offset rising rate risk. Fidelity Corporate Bond (FCOR) climbed 1.15 percent. The 10-year Treasury yield climbed to 0.89 percent, the highest yield since mid-March.

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