- Life & Money
- Market Commentary
- Weekly Market Commentary
- Brent Schutte, CFA
- May 26, 2020
Markets Rise, and Fall, With Vaccine Headlines
Last week illustrated just how focused markets are on a vaccine, and how this single (albeit critical) factor is driving stocks in the short-term. On Monday, markets surged after biotech company Moderna released promising results from a phase-1 vaccine trial. However, stocks pared some gains Tuesday after a STAT news report cast doubt on the results. Scientists said the corporate announcement was lacking hard data. Adding fuel to the fire: The company sold a $1.3 billion secondary equity offering after markets closed on Monday (though that isn’t uncommon for young biotech companies).
Last week highlighted the futility of “trading the news”, or, contrarily, waiting on the sidelines for good news or data before investing again (markets price in the good stuff quickly). Instead, the key to building wealth is constructing a long-term plan, sticking to that plan and remaining diversified in a mix of assets appropriate for your financial goals — that’s especially important in such an uncertain environment. Now, let’s get into the week that was and prep you for the week ahead.
WALL STREET WRAP
A Quick Vaccine Round-Up: Back to Moderna. The company’s candidate appeared to prompt an immune response without detrimental side effects in 8 patients who participated in a preliminary, 45-person phase-1 trial. While the STAT report raised legitimate questions from scientists, NIAID Director Anthony Fauci on Friday told NPR he saw Moderna’s data and the results were “better than we thought”, adding it’s “conceivable” we get a vaccine within the calendar year. Still, Moderna’s study needs to be peer reviewed, as well as advanced through larger phase-2 and phase-3 trials.
In other vaccine news, a University of Oxford research team, in partnership with AstraZeneca reported its vaccine generated neutralizing antibodies in six monkeys who were given the treatment and then exposed to the virus. While it protected them from developing pneumonia and prevented the virus from duplicating, it could still be detected in their upper airways (that study also needs to be peer reviewed). Still, the U.S. secured 300 million doses of this experimental treatment, which is slated to begin late-stage trials in a few months. All told, there are more than 100 vaccine candidates in the works right now.
U.S.-China Tensions Shift to Markets: Financial markets are a new sticking point between the U.S. and China. On Wednesday the Senate unanimously passed legislation that could bar many Chinese companies from listing their shares on U.S. exchanges. The bill would require foreign companies to let the Public Company Oversight Board oversee the auditing of company financial records if they want to raise money selling stocks and bonds in the U.S. Most foreign firms already do this, except for Chinese firms. The House is now reviewing that bill. If legislation were to pass, more than 150 Chinese companies could be at risk of being delisted from U.S. exchanges.
Housing Poised for a Rebound? Existing home sales fell nearly 18 percent in April when stay-at-home orders peaked. Buyers couldn’t get out and shop for homes and worried about the employment, while sellers took their homes off the market. At the same time, supply of homes for sale fell 19.7 percent, increasing competition (and boosting prices). For example, roughly 40 percent of home sales involved a bidding war in the four weeks ending May 10 compared to just 9 percent in January, according to Redfin data.
There’s optimism that the housing market could bounce back relatively quickly, based on a few factors: People with higher-incomes, who are more likely to be potential homebuyers, were largely spared the worst impacts of the downturn; mortgage rates are still historically low, and urban populations leaving cities could support demand for single-family homes in suburbs (particularly those with offices for working from home). The same Redfin data also showed buying demand rose 16.5 percent in the 7 days ended May 17, adding to signs of a recovery. That gels with a May bounce from April lows in homebuilder sentiment, as builders are seeing interest from buyers begin to rebound.
Other Signs of We’re Climbing the Valley: Data from OpenTable, which tracks year-over-year, dine-in reservation trends and restaurants is starting to recover, although slowly. Up until May 10, reservations were down 100 percent year-over-year. However, that improved to an 87 percent decline by May 24 in the U.S. That’s still a dramatic difference, but it’s a sign of improvement.
In Germany the improvements were far more pronounced, rising from a 100 percent year-over-year decline on May 10 to traffic being down just 55 percent year-over-year on May 24.
The Philadelphia Fed manufacturing index also showed signs of improvement, rising to -43.1 in May from -56.6 in April (a reading below zero indicates worsening conditions). Moreover, 62 percent of firms surveyed expect activity to increase over the next six months compared to just 13 percent who expect declines. All in all, the data isn’t great, but it’s getting better and that’s a sign were climbing out of an economic valley rather than digging deeper.
THE WEEK AHEAD
Are Consumers Optimistic? As we’ve said before, consumer spending is the largest contributor to GDP and economic growth in the U.S., and on Tuesday we’ll see what effect job losses, the pandemic and lifting stay-at-home orders have had on people’s outlook for the economy and their personal finances. Again, markets aren’t necessarily looking for data to knock it out of the park, but a better-than-expected read could provide a tailwind for stocks through the week.
Federal Beige Book: The Fed’s Beige Book will be released on Wednesday. The document is a compilation of anecdotal observations about economies across the United States. And, during a pandemic where each state is forging its own path forward, these disparate data points could give us some insights on whether different approaches are exceeding expectations or not going as smoothly as planned.
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As the chief investment officer at Northwestern Mutual Wealth Management Company, I guide the investment philosophy for individual retail investors. In my more than 25 years of investment experience, I have navigated investors through booms and busts, from the tech bubble of the late 1990s to the financial crisis of 2008-2009. An innate sense of investigative curiosity coupled with a healthy dose of natural skepticism help guide my ability to maintain a steady hand in the short term while also preserving a focus on long-term investment plans and financial goals.