Market Insights: Market Commentary
Milestone Wealth Management Ltd. - Jun 05, 2020
Market developments Despite civil unrest across the United States, escalating American tensions with China and an ongoing battle with COVID-19, North American markets once again moved higher. Oil prices continued to slowly recover, with the US West T
- Despite civil unrest across the United States, escalating American tensions with China and an ongoing battle with COVID-19, North American markets once again moved higher.
- Oil prices continued to slowly recover, with the US West Texas Intermediate crude price trading around $39 and the Western Canadian Select price trading around $26 on Friday.
- White House health advisor Dr. Anthony Fauci expressed optimism that one of the many coronavirus vaccine trials would prove effective and stated that the U.S. should have 100 million doses of vaccine by the end of year.
- The Canadian government announced it will offer cities $2.2 billion in infrastructure money to help cover COVID-19-related budget shortfalls.
- The Bank of Canada held interest rates steady and indicated that it expects the economy to resume growth in the third quarter.
- The monthly non-farm payrolls employment numbers were released in the US and Canada. Despite estimates of continued massive job losses for May, both countries surprisingly posted job gains, recouping some of the lost jobs in April. This chart details the job gains and losses in the US during May.
How does this affect my investments?
Global capital markets continue to brush aside a number of conflicting developments as they stage a strong recovery from the March lows. Months ago, no one would have imagined that 2020 would present a global pandemic, followed by a gradual re-opening of economies after an extended shutdown. Similarly, one would have been hard pressed to find anyone predicting that markets would have seen the massive selloff and partial recovery we have seen already this year. Yet here we are.
By adhering to our process, we have the luxury of being able to observe surprises in either direction in the context of a longer-term strategy; and regardless of where markets go from here, such a perspective is valuable – particularly the next time we are faced with strong volatility.
We wanted to leave you this week with an interesting chart and data that was recently tweeted by Ed Clissold of Ned Davis Research. It provides a sense of comfort going forward. On May 27th, the S&P 500 closed above its 200-day moving average for the first time in 57 trading days. This chart points out that in addition to this positive technical milestone, over 90% of the stocks in the index are above their 50-day moving average. With this achievement, we have seen an enormous swing from over 75% of stocks being below their 50-day moving average to over 90% above it. The black arrows below show each time this breadth indicator has done this same swing of over 75% below to over 90% above. As you can see this tends to occur at or near important lows. In fact, of the 19 times this has occurred, the S&P 500 has been positive a year later (253 trading days) 100% of the time with a median gain of 16.3%. This breadth gauge tends to fire a bit late, however, occurring a median of 1.8 months after a bear market low. This time was similar, triggering at 2.0 months.
Source: Ed Clissold (@edclissold), Ned Davis Research Inc. www.ndr.com