Associated Press
The Fed
Stocks fell after the market open on Monday but then reversed course when the Fed announced it would begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility (SMCCF), one of the nine emergency lending programs announced by the Fed in mid-March aimed at propping up the economy. So far they’ve invested $5.5 billion of their $250 billion capacity in corporate bond ETFs. They said they would create a diversified market index of US corporate bonds to implement the buying strategy, which would be in keeping with Section 13.3 of the Federal Reserve Act, which says emergency lending facilities must be broad-based.
The Fed also announced they were beginning their $600 billion program to lend directly to small and midsize businesses in which banks could “sell up to 95% of their loans that meet the Fed’s standards to an investment entity established by the Boston Fed.”
Retail Sales
US retail jumped a record 17.7% from April to May, per the Department of Commerce’s Advance Monthly Sales for Retail and Food Services, May 2020 report. Among the highest growing categories were Clothing & clothing accessories stores, which climbed 188%, followed by Furniture & home furn. stores at 89.7% and Sporting goods, hobby, musical instrument & book stores at 88.2%. However May was still down 6.1% in comparison to last year, indicating spending overall is still below pre-covid levels.
The large increase in clothing sales is partly attributable to stores offering significant discounts designed to clear inventories. Additionally, it is believed that stimulus spending is a "huge driver”of the overall increase, and a continuation of the increased spending trend will depend on the labor recovery and whether or not Congress extends the expanded unemployment benefits program of $600 per week, which are set to expire on July 31.
US Department of Commerce
Fiscal Stimulus
On Wednesday Powell warned against pulling congressional help too quickly when answering questions before the House Financial Services Committee.
Currently Democratic lawmakers are drafting another stimulus package while Republicans are pushing for a “wait and see” approach before moving forward with additional aid. They have pointed to the better-than-expected May jobs report in which the unemployment rate fell to 13.3% from 14.7% in April as evidence that the economy is recovering. Regardless, Chairman Powell has stressed we’re in a critical phase of economic recovery and that it would not behoove us to pull help prematurely.
Additionally, coronavirus cases have begun to spike in various states, including Texas, Arizona and North Carolina, which may lead to the reinstatement of lockdowns and/or stricter safety measures and dampen the progress of economic activity.
US Employment
US jobless claims edged lower to 1.51 million from 1.57 million the week prior. This is worse than the 1.29 million forecast by economists. So far more than 45 million Americans have made jobless claims, while 20.5 million are actively receiving benefits which represents about 14.1% of the workforce. This means we still have a long way to go before we reach the pre-covid unemployment rate of 3.5%
Stock Market
Stocks End Mostly Lower as Apple Closes Stores. On Friday Apple announced it would be closing stores in the states in which covid-19 infections are spiking, including Florida, Arizona, North Carolina and South Carolina. This in itself isn’t what is moving markets, but rather the specter of additional closings by other large corporations who may take similar actions.
Overall the major indices notched gains of at least 1% each, a reversal of the prior week’s drop. Adding to the volatility is the quadruple witching phenomenon “which occurs four times a year and refers to the day that options and futures on both indexes and stocks expire at the same time” and heavy trading volume ensues as traders adjust their expiring positions.
Crude oil reached its 3-month high, settling at $39.75 per barrel while the yield on the 10-year Treasury note remained unchanged, settling at 0.696%.
Monday - Existing home sales
Tuesday - New home sales
Wednesday - FHFA home price index (YoY change)
Thursday - Initial Jobless Claims, Q1 GDP, Durable and Core capital goods orders
Friday - Personal income, Consumer spending, Core inflation and Consumer sentiment index