Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
All data is for the week ended June 5, 2020.
Markets surged higher as investors focused on signs of a rebounding global economy especially a report on payrolls, which showed an unexpected increase in jobs during May, adding to growing optimism for a quick rebound. (See Economic Data below). The S&P 500 grew 4.96%, the Russell 2000 jumped 8.13% and the NASDAQ added 3.44%. Overseas, the international developed markets (MSCI EAFE) rose 7.07% while emerging markets (MSCI EM) gained 7.88%. Energy and Financials were the best performing sectors in the S&P 500, while health care and staples lagged. (1)
Interest rates rose dramatically and values fell, with the benchmark 10-year Treasury yield up 16 basis points to 0.91%. Yields on longer dated maturities rose even more, steepening the yield curve. (1) Higher bond yields connote higher confidence in the economy as investors rotate away from fixed income toward higher-risk equities.
Crude-oil futures climbed Friday morning, supported partly by reports that major oil producers were expected to convene over the weekend to outline plans to extend productions cuts during a meeting on Saturday. This was viewed as a signal that the group would be willing to cut production near-term in order to stabilize oil’s value. West Texas crude oil futures rose 11% for the week to $39.55 per barrel. (2)
Total nonfarm payroll employment rose by 2.5 million in May, and the unemployment rate declined to 13.3 percent, much better than consensus expectations for a decline in employment and an unemployment rate of 19%. (3)
1.9 million Americans applied for traditional jobless benefits at the end of May and another 623,000 filed new claims under a federal-relief program. Initial jobless claims have slowly tapered off since peaking at almost 7 million one week in late March. (4)
Mortgage purchase applications increased 5% week-over-week and 18% on a year-over-year basis. The gains can be attributed to pent-up demand from homebuyers returning to the market as interest rates dropped at the same time confidence for jobs was on the rise. The average mortgage interest rate was 3.66% on a 30-year loan. (5)
The manufacturing index was 43.1 in May vs. 45 in April—slightly below expectations of 45.4 as the decline in factory production indicated a level not seen since 2009 but the trajectory improved. The Price component of the index rose 5.5 points from April but prices were still not increasing. (6)
Proprietary portfolio happenings:
VanEck Mortgage REIT ETF (MORT), an Absolute Yield holding, rose 18.8% last week as confidence increased that the economic improvement would ensure payments to mortgage real estate trusts. The steepening of the yield curve is also a benefit to these holdings. (7)
Visa (V), a Core Select and G33 holding, updated their payments volume for May with a sequential improvement, from down 13% in April to down 5% as countries begin to relax Covid-19 restrictions. Some countries started to show year-over-year growth. Additionally, Visa noted a shift toward larger ticket transactions indicating stronger consumer confidence. (8)
UnitedHealth Group Inc. (UNH), a Core Select and G50 holding, announced a 16% dividend hike.9 Yield on the new rate for this consumer health benefit service provider is 1.60%.
Did You Know? Dennis Wilson was the drummer for the surf rock band ‘The Beach Boys’, formed in 1961. The band had several songs about the sport including, “Surfer Girl”, ”Surfin’ Safari”, “Surfer Moon” and “Surfin’ USA”. However, out of all the band members (comprised of brothers Brian, Dennis, and Carl Wilson, their cousin Mike Love and friend Al Jardine) Dennis was the only one who knew how to surf.
Sources: (1) JP Morgan Weekly Market Recap 6-8-20, (2) Oilprice.com, (3) Bureau of Labor Statistics 6-5-20, (4) US Department of Labor 6-4-20, (5) Mortgage Bankers Association 6-3-20, (6) Institute for Supply Management 6-1-20, (7) Yahoo Finance, (8) UnitedHealth Investor Relations - Dividends, (9) Reuters, “Visa Sees Recovery” 6-1-20