Possible New Weapon in COVID-19 Fight Lifts Sentiment…..

U.S. equities rallied amid increased hopes in the war against COVID-19 following Gilead Sciences’ announcement of positive trial results of its investigational antiviral treatment, remdesivir, in combating the coronavirus. As well, continued progress in the slow reopening of the U.S. economy boosted sentiment. On the earnings front, Google’s parent Alphabet and Dow member Boeing were highlights in another busy day, while GE and Ford came under pressure following their reports. Q1 GDP contracted at a faster pace than expected as personal consumption fell sharply, while the Fed kept its policy steady, as expected, and pledged to keep rates low for the foreseeable future. Treasuries finished nearly unchanged, the U.S. dollar was lower, gold turned higher, while crude oil prices recovered somewhat from a recent tumble. Markets in Europe and Asia were also higher.

The Dow Jones Industrial Average rose 532 points (2.2%) to 24,634, the S&P 500 Index increased 76 points (2.7%) to 2,940 and the Nasdaq Composite jumped 307 points (3.6%) to 8,915. In heavy volume, 1.2 billion shares were traded on the NYSE and 4.3 billion shares changed hands on the NASDAQ. WTI crude oil rose $2.72 to $15.06 per barrel and wholesale gasoline gained $0.05 to $0.75 per gallon. Elsewhere, the Bloomberg gold spot price was $8.21 higher at $1,716.00 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.4% to 99.50.

The first look (of three) at Q1 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of contraction of 4.8%, versus the unrevised 2.1% expansion in Q4, and larger than the 4.0% decline forecasted by Bloomberg. Personal consumption tumbled 7.6%, well below forecasts of a 3.6% drop, and following the unadjusted 1.8% increase recorded in Q4.

On inflation, the GDP Price Index came in at a 1.3% rise, north of expectations of a 1.0% gain, and matching the unrevised increase seen in Q4, while the core PCE Index, which excludes food and energy, moved 1.8% higher, above expectations of a 1.7% rise, and following the unadjusted 1.3% advance in Q4.

The MBA Mortgage Application Index declined by 3.3% last week, following the prior week’s 0.3% dip. The decrease came as a 7.3% drop in the Refinance Index more than offset an 11.6% rise for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 3.43%.

Pending home sales fell 20.8% month-over-month (m/m) in March, versus projections of a 13.6% fall, and following the downwardly-revised 2.3% rise registered in February. Sales were 14.5% lower y/y, compared to the expected 7.6% decline. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, keeping the target for the fed funds rate anchored near zero, as was widely expected. In its statement the Committee said, it will “maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” a commitment that was stronger than most market participants were expecting. As well the Committee said, “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” There was no mention as to the pace of bond purchases in the future. However, in his press conference that followed the meeting, Chairman Jerome Powel said that the economy will likely need more support from the Fed for the recovery to be “robust.” After taking the target for the fed funds rate to a lower band of 0.00% in an emergency March meeting, the Fed set off a series of unprecedented crisis-combating monetary policy actions aimed at keeping the financial markets functioning properly.

Treasuries finished nearly unchanged, as the yields on the 2-year and the 10-year notes were flat at 0.20% and 0.61%, respectively, while the 30-year bond rate inched 2 bps higher to 1.23%.

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