Market Perspective 5/2/2020

Market Perspective

May 2

Welcome spring. Few things in life are as reliable as the seasons changing. Although no one can consistently predict the day or even the week the seasons will change weather-wise, we intuitively know change will happen. As Midwesterners, we know that warm weather can occur before spring’s grand opening, and yet, we can’t rule out a snow until almost June. In terms of weather, no single day represents a meteorological change of season. One parallel between seasons and financial markets is they both go through cycles and the transitions can take time.

Market Notes:

This past week the stock prices of small companies outpaced large after lagging during the February-March decline
- Important to note, a single observation does not make a trend
- Historically, when coming out of a market decline, smaller companies have tended to outperform their larger counterparts
Corporate earnings for the first quarter have generally been lower than prior quarters – no surprise
55% of companies within the S&P 500 Index have now reported earnings for the first quarter (1)
Thus far, weighted average net income decreased 13% compared to first quarter 2019
Against this backdrop, stock markets have been trending higher throughout this earnings season
- During Q1, the US economy, measured by gross domestic product (GDP), shrank by 4.8% on an annual rate
- This decline was the first in six years and the largest since fourth quarter of 2008
The Federal Reserve met this week, as expected short term interest rates were unchanged with a target rate range of 0-0.25%
- Low-interest rates can be used as a form of economic stimulus