|AUTHOR: Kerry J. Hilsabeck, CFP® |
TITLE: Investment Adviser Rep
TAGS: Unemployment, Housing & Building, Yield Curve, Manufacturing & Services, S&P 500
Is the worst behind us, or was the market fall last week indicative of the start of a new volatility increase?
OPEC + extended their production cuts which you would think sent oil prices higher Monday. To the contrary, oil gave up nearly 4%. Markets on the day continued the rally from the previous week as the S&P 500 added another 1.2%. Bringing it within 5% of it’s all time high. This on a day where the National Bureau of Economic Research (NBER) announced the longest ever expansion ended in February.
Markets opened in the red as they seemed skittish ahead of the Federal Reserve Bank (FRB) meeting results on Wednesday. In a rare move, markets went dark for 8 minutes 46 seconds at noon. This was done to memorialize the passing of George Floyd as his funeral began.
Markets dipped in mid-morning trade awaiting the FRB meeting. Investors were waiting to see to what level the FRB will continue to support the economy. FRB Chair Powell indicated that rates would remain near zero through 2022. They also indicated they will continue their current pace of $120B/month in bond purchasing. Expectations were for the rate of purchasing to slow slightly.
The FRB’s Wednesday statement seemed to sink in for investors on Thursday. The FRB views that the road to recovery will be a long one that will require additional fiscal stimulus. Encouragingly, the FRB indicated that they would provide continued support to the economy. Markets tumbled on Thursday as the S&P 500 sank 5.89%. This clearly expresses investor support for additional fiscal stimulus.
After a fall reminiscent of this past March on Thursday, market behavior on Friday would be very telling. If markets sold off heading into the weekend, that would have indicated that investors feared the weekend news cycle. If they moved higher, it would indicate that investors prefer to buy the dip. Luckily, it was the latter as markets rose 1% on Friday.
Clearly not a good week on the markets last week as we saw losses across the board. Long-term optimism should be there, however, as the FRB has given a clear indication of support for the economy. The risks of a second wave of COVID have increased, so maintaining caution as we head into the summer months is prudent.
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