US equity markets declined slightly more than 2% last week as investors monitor the gradual process for individual states to reopen their economies. The S&P 500 index has trended sideways for the last month, remaining rangebound between approximately 2,800 and 2,900 after advancing roughly 30% through April 17 from the recent low marked on March 23. Much of the week’s decline occurred Wednesday afternoon when Federal Reserve Chairman, Jerome Powell, held a press conference during which he indicated that the COVID-19 virus could have long-term impacts on US economic health and growth, and he called on lawmakers and US administration to provide more fiscal support. Thursday’s weekly jobless claims were also worse than economists had expected as nearly 3 million more people filed for unemployment benefits, bringing the total during the COVID-19 crisis to more than 36 million (Chart 1).
The monthly change in retail sales fell drastically again in April as households pulled back in discretionary purchases like vehicles and restaurants, and instead focused on staples during the quarantine (Chart 2). Separately, the Federal Reserve said that factory output declined by 13.7% in April, the largest monthly decline since records began in 1919. Non-store retailers like Amazon benefitted from the move toward e-commerce as online sales grew 8.4% month-over-month. Household spending is the driving force for the US economy, accounting for roughly two-thirds of gross domestic product, so these signs of sharp pullbacks in consumer activity indicate that we are likely in the midst of a significant period of broad economic contraction.
Markets recovered modestly on Friday on news that the US House of Representatives was close to passing a new $3 trillion stimulus bill. However, Senate Majority Leader, Mitch McConnell, has already indicated that he would not take up the bill in its current form, and that he would prefer to monitor the impact of previous stimulus efforts before providing more aid. The House bill includes approximately:
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