Stocks Rise in Week Marked By Two Halves

Last Updated: Friday, May 29, 2020 4:34 PM | Bobby Raines

May 29, 2020 - Stocks posted gains this week, but the first two days of the holiday-shortened week were pretty different from the final two.

Tuesday and Wednesday saw rallies from some recently unloved parts of the market.  Airlines and other travel-related industries as well as banks and financial services, which were hit hard when the market fell, had hardly bounced until now.

Big tech meanwhile lagged as it seemed the rest of the market might be lifting off.

This transition was encouraging, as a broad-based rally is typically much more sustainable than momentum in a particular industry. It's too early to tell if this new trend is long term as it was other news that really helped to contribute to the second half of the week's change in tone.

That change in tone was largely related to China. They are moving ahead with ending Hong Kong's special status with new laws aimed at stripping the island of its autonomy. The U.S. and many other western nations oppose this move, and have promised to end policies that have made Hong Kong one of the major centers of the financial world.

The market was unsettled much of Thursday, but took a sharp southward turn after President Trump announced a press conference about China at 2:30 p.m. Friday afternoon.

Stocks remained unsettled for much of Friday's session, trading in red numbers for most of the day. News reports before 2:30 p.m. included that the president would not be canceling or making changes to the "Phase One" trade deal.

The actual event was brief. The only major policy change is that Trump is withdrawing the United States from the World Health Organization. He said the administration will also begin the process of eliminating some of the policies that treat Hong Kong differently from China.

This was apparently a relief to the markets. Stocks, which headed sharply lower when Trump began speaking, quickly rallied once it was clear there would be no announcement of any substantial economic action.

Elsewhere in the economy, new claims for unemployment remained above 2 million last week. But the most interesting news of the week was Friday's Personal Income and Outlays report for April.

The big surprise was that personal incomes increased at a 10.5% annualized rate from March. This was attributable almost entirely to the one-time payments sent to Americans under the CARES Act. Spending, known in this report as personal consumption expenditures, contracted by 13.6%. This divergence, big jump in incomes, big drop in spending, contributed to a jump in what is known as the savings rate.

This is not altogether surprising as consumers are known to preserve cash when they are worried about the economy. It is somewhat troubling though, as without spending, there is no economy. It is likely that some of April's jump in savings will disappear in May as the millions of unemployed Americans likely spent down savings this month.

In addition to unemployment,other more well known economic indicators will be key data points to keep an eye on going forward. If consumer spending remains suppressed, the economic recovery will be weaker and slower than it would be otherwise.

All told this week, the S&P 500 rose 3.01%, the Dow Jones added 3.75% and the Nasdaq gained 1.77%.

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