Encouraging updates on vaccine progress, optimism for reopening economies, and talk of more stimulus combined to overcome increasing tension between the US and China, driving stock prices higher for the week. Small cap stocks posted the biggest gains, with the Russell 2000 index up over 7%.

Weekly Returns

S&P 500: 2,955 (+3.2%) (SPY)
FTSE All-World ex-US (VEU): (+2.6%)
US 10 Year Treasury Yield: 0.66% (+0.02) (SPTL)
Gold: $1,735 (-0.4%) (GLD)
EUR/USD: $1.090 (+0.7%) (FXE) (UUP)

Major Events

• Monday – Moderna said all 45 participants in an early stage vaccine trial developed COVID-19 antibodies.
• Monday – Fed Chairman Jerome Powell said he believes the economy could return to growth in the third quarter.
• Tuesday – Treasury Secretary Mnuchin said the Treasury will move toward taking on more risk in federal lending programs and expects to take some losses.
• Wednesday – Mortgage loan applications fell just 1.5% from a year ago, signaling demand for housing remains strong.
• Wednesday – There are now 15 million credit card accounts in financial hardship programs which allow for things such as payment deferral.
• Thursday – Jobless claims for the week remained highly elevated at 2.4 million, but the rate decelerated from previous weeks.
• Thursday – China said it will not announce a growth target for the year.
• Thursday – Sweden said as of the end of April, 7.3% of Stockholm residents tested positive for an antibody test, suggesting the countries lax approach to lockdowns is still a long way from herd-immunity ranges.
• Friday – President Trump said he would order states to open places of worship as soon this weekend.
• Friday – China announced new measures aimed at increasing control over Hong Kong, increasing tensions with the U.S.

Our Take

A year ago, the investment world’s biggest worry was trade conflict with China. Coronavirus has put many things in perspective. A few hundred billion in tariffs now seems like an afterthought compared with the trillions of dollars of wreckage resulting from social distancing measures.

The tariffs were probably never as damaging as commonly perceived, but a general trend toward mistrust and deglobalization would make economic recovery that much harder. The saying goes, “never waste a good crisis”, and this week China took steps to increase its authority in Hong Kong. Some believe it is the first steps in what will be the end of the city as we know it.

Some members of Congress have said they will seek sanctions and President Trump is likely to make anti-China rhetoric a theme in the election. If relations with China worsen to a point where trade deteriorates meaningfully, we will see a further hit to earnings at precisely the wrong time. The impact of the virus on the economy remains the most important factor for markets, and on balance news this week on that front was positive. But as always, there are many things happening at once.

In a world with significant challenges, we are thankful for the freedoms we enjoy and grateful for those who sacrificed so we can. We wish everyone a safe and enjoyable Memorial Day Weekend.