Bulls Continue to Run…..

Optimism surrounding progress of economic reopenings from the COVID-19 disruption persisted, pushing stocks into the green in today’s session and moving them further off their March lows. Meanwhile, a host of upbeat data added to the positive sentiment, with global manufacturing and services reports showing improvement in May from April’s stark drop, and as ADP’s U.S. private sector employment report for May came in much better than expected ahead of Friday’s key nonfarm payroll release. News on the equity front also appeared to add to the mood, as Zoom Video Communications, Campbell Soup and CrowdStrike all issued upbeat earnings reports and Microchip Technology raised its guidance. Treasury yields rallied amid a decline in bond prices, and the U.S. dollar lost ground, extending a recent slide, while crude oil prices were modestly higher after pausing from a recent surge, and gold tumbled. Markets in Europe and Asia also saw solid gains.

The Dow Jones Industrial Average rallied 527 points (2.1%) to 26,270, the S&P 500 Index advanced 42 points (1.4%) to 3,123 and the Nasdaq Composite increased 75 points (0.8%) to 9,683. In heavy volume, 1.1 billion shares were traded on the NYSE and 4.6 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.48 to $37.29 per barrel and wholesale gasoline was unchanged at $1.12 per gallon. Elsewhere, the Bloomberg gold spot price declined $29.18 to $1,698.52 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% at 97.24.

The May Institute for Supply Management (ISM) non-Manufacturing Index rose to 45.4 from April’s 41.8, above the Bloomberg forecast of an improvement to 44.4, with a reading below 50 denoting contraction. The index rebounded from the lowest level since March 2009, as the new orders component rose to 41.9 from 32.9 and employment increased to 31.8 from 30.0, while the business activity portion of the report jumped to 41.0 from 26.0, after registering the lowest reading since the report began in 1997. The ISM said respondents remain concerned about the ongoing impact of the coronavirus, but many of the respondents’ respective companies are hoping and/or planning for a resumption of business.

The final Markit U.S. Services PMI Index for May was revised modestly higher to 37.5 from the preliminary estimate of 36.9, and compared to the expected adjustment to 37.3. The Index improved from April’s record low of 26.7, but a reading below 50 denotes contraction. Markit’s release is independent and differs from the ISM report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in company size, including the small and medium-sized companies.

The ADP Employment Change Report showed private sector payrolls dropped by 2,760,000 jobs in May, much better than forecasts of a 9,000,000 drop, while April’s decrease of 20,236,000 jobs was revised to a 19,557,000 fall. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader May non-farm payroll report, expected to show jobs fell by 8,000,000 and private sector payrolls dropped by 7,500,000. The unemployment rate is forecasted to jump to 19.5% from 14.7% and average hourly earnings are projected to rise 1.0% month-over-month (m/m), and be up 8.5% y/y.

The MBA Mortgage Application Index declined 3.9% last week, following the prior week’s 2.7% gain. The decrease came as an 8.6% drop in the Refinance Index more than offset a 5.3% rise for the Purchase Index. The average 30-year mortgage rate fell 5 basis points (bps) to 3.37%.

Factory orders fell 13.0% month-over-month (m/m) in April, versus expectations of a 13.4% drop, and compared to March’s downwardly-revised 11.0% fall. Stripping out the volatile transportation component, orders fell 8.5% compared to March’s negatively-adjusted 4.0% decrease. Final durable goods orders, preliminarily reported last week, were revised lower to a 17.7% m/m drop for April, and orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were adjusted downward to a 6.1% fall.

Treasuries fell, as the yield on the 2-year note rose 3 bps to 0.19%, the yield on the 10-year note gained 8 bps to 0.76%, and the 30-year bond rate increased 7 bps to 1.55%.

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