05/22/2020
Through Wednesday of this week, U.S. equities are higher by a solid 3.8 percent. Most of that rise occurred on Monday, following a report from biotech company Moderna citing encouraging results from its coronavirus vaccine trial. The S&P 500® index climbed 3.2 percent on the day. Moderna stock soared 20 percent on the day to close at $80 a share. The company took the opportunity to issue new stock at $76 a share and finished the day on Wednesday at a price of $73.47. The company previously offered shares in February at a price of $19 a share. There was more potential good news on the virus front on Wednesday after two teams offered evidence that virus antibodies, whether from an infection or vaccine, do provide protection from future infection. 

The S&P 500 has now risen 33 percent from its March 23 low and sits just 1 percent below the 3000 level it last saw on March 5. For the year-to-date, it remains lower by 8 percent. There was no repeat of last month’s fiasco in crude oil futures, as the May contract settled in orderly fashion. It may be recalled that the front month contract fell to a price of -$38 a barrel on April 20 as investors ran from the prospect of being forced to take physical delivery. The May contract expired on Wednesday without any dislocation. The price of the May contract for West Texas Intermediate crude started the day on April 21 at $10 a barrel. It closed yesterday at $33, as signs of economic recovery have combined with production cuts and inventory draws tighten the supply and demand balance. 

Stocks in the Eurozone Rise 

Stocks in the Eurozone received a shot in the arm on Monday as Germany and France proposed a 500-billion-euro recovery fund to help countries within the monetary union rebuild following the coronavirus crisis. The proposal has a long way to go before it becomes a reality, but it appears to represent a breakthrough in the long-standing reluctance of the north to pay for the perceived profligacy of countries in the south. 

One of the long-time perceived weaknesses of the Eurozone structure is that while it had a monetary union, it did not have a fiscal union. Monday’s proposal appears to be a significant step in that direction, as it proposes large scale borrowing by the European Union (EU) and the disbursement of budgetary transfers to countries in need of fiscal assistance, including some as grants, and not strictly loans. The Financial Times described the proposal as having “electrified” the debate about financing the virus recovery. The EuroStoxx 50 index of Eurozone equities surged 5.1 percent on Monday in response. The index has trailed the recovery in the U.S. and currently sits 22 percent above its March 18 low and remains lower on the year by 22 percent. 

The flash PMIs for the Eurozone were released this Thursday morning and show a regional economy still struggling. The composite index did rebound strongly from the April report, but remains extremely weak. The U.K. showed similar weakness. 

Total Number of Jobless Claims Slows, but Is Still Unacceptably High 

In the U.S., weekly jobless claims totaled 2.4 million, bringing the nine-week total 39 million. Last week’s total was the lowest since the surge in unemployment began, but that is small comfort as the total remains unacceptably high. The flash PMI reports are expected to show modest improvement, but to a still weak level of activity. Also, on today’s calendar are April existing home sales and leading indicators, both of which are expected, not surprisingly, to be quite soft. 

Important Disclosures:

Sources: Factset, Bloomberg, Department of Labor News Release, May 21, 2020.

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Individual securities referenced are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell.

Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources.  This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor. 

Past performance is not a guarantee of future results.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index

The Standard & Poor’s 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees.

The Euro STOXX 50 Index is a market capitalization-weighted stock index of 50 large, blue-chip European companies operating within Eurozone nations. Components are selected from the Euro STOXX Index, which includes large-, mid- and small-cap stocks in the Eurozone

West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.

Flash services PMI is an early estimate of the Services Purchasing Managers' Index (PMI) for a country designed to provide an accurate advance indication of the final services PMI data. The Data is based on surveys of over 400 executives in private sector service companies. The survey covers transport and communication, financial intermediaries, business and personal services, computing and IT, hotels and restaurants.