Data, Stimulus and COVID-19 News Boost Stocks…..

U.S. stocks finished higher, adding to yesterday’s sharp upward reversal, as sentiment got a boost from a number of fronts. A slew of global economic data aided the rally, with a much stronger-than-expected snap-back in retail sales and an unexpected jump in home builder sentiment into positive territory out of the U.S. following upbeat U.K. employment and German investor confidence data. Moreover, additional stimulus efforts boosted conviction, with Fed Chairman Jerome Powell reiterating in his testimony before the Senate Banking Committee that unprecedented support will remain as the Central Bank is set to begin corporate bond purchases today, and as the White House is reportedly mulling a $1.0 trillion infrastructure spending program. Finally, sentiment was also supported by reports that a low-dose steroid treatment may help save lives in patients stricken with the COVID-19 infection. Treasury yields rose as bond prices fell, and the U.S. dollar gained ground, along with crude oil and gold prices. In equity news, Lennar Corporation posted upbeat Q2 results, but offered mixed guidance, while Dow member McDonald’s, Delta Air Lines and WW International all delivered favorable updates on business activity. Europe finished with widespread gains and markets in Asia were solidly higher.

The Dow Jones Industrial Average rose 527 points (2.0%) to 26,290, the S&P 500 Index increased 58 points (1.9%) to 3,125 and the Nasdaq Composite gained 170 points (1.8%) to 9,896. In heavy volume, 1.3 billion shares were traded on the NYSE and 4.6 billion shares changed hands on the NASDAQ. WTI crude oil moved $1.26 higher to $38.38 per barrel and wholesale gasoline gained $0.04 to $1.21 per gallon. Elsewhere, the Bloomberg gold spot price rose $1.88 to $1,727.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.4% at 97.04.

Advance retail sales for May surged 17.7% month-over-month (m/m), versus the Bloomberg forecast of an 8.4% rebound from April’s positively-revised record 14.7% plunge. Last month’s sales ex-autos jumped 12.4% m/m, compared to expectations of a 5.5% rise and April’s favorably-revised 15.2% tumble. Sales ex-autos and gas also gained 12.4% m/m, compared to estimates of a 5.1% increase, and April’s reading was adjusted upward to a 14.4% drop. The control group, a figure used to calculate GDP, was up 11.0% m/m, compared to projections of a 5.2% increase and versus April’s positively-adjusted 12.4% fall.

The report showed a record broad-based m/m snap-back of activity, with clothing store sales surging 188%, furniture-store sales jumping nearly 90%, sporting goods stores rallying 88%, electronic & appliance sales rising 51%, and auto sales up 44%. Nonstore retail sales—which include online activity—were 14% higher.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in June improved much more than expected to 58 from May’s 37 level, and versus forecasts to rise to 45. A level north of 50 depicts positive conditions. The NAHB said, “As the nation reopens, housing is well-positioned to lead the economy forward. Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising. And buyer traffic more than doubled in one month even as builders report growing online and phone inquiries stemming from the outbreak.” However, the NAHB added that, “At the same time, elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market.”

The Federal Reserve’s industrial production increased 1.4% m/m in May, below estimates of a 3.0% rise, and versus April’s unfavorably-adjusted 12.5% drop, which was the largest drop in the 101-year history of the index amid the COVID-19 disruption. Manufacturing output improved from a record drop as many factories resumed at least partial operations and the largest contributor was registered by motor vehicles and parts. However, mining and utilities production both fell solidly. Capacity utilization ticked higher to 64.8% from the prior month’s downwardly-revised 64.0% rate, but below expectations of 66.9%. Capacity utilization is 15.0 percentage points below its long-run average.

Business inventories fell 1.3% m/m in April, more than forecasts of a 1.0% drop, and versus March’s downwardly-adjusted 0.3% decrease.

Treasuries were lower on the retail sales data, as well as optimism of further monetary and fiscal relief measures, and a potential COVID-19 treatment. The yield on the 2-year note gained 1 basis point (bp) to 0.20%, the yield on the 10-year note rose 5 bps to 0.75% and the 30-year bond rate gained 9 bps to 1.54%.

The Treasury yield curve flattened last week, with the markets grappling with increased concerns regarding a potential second wave of COVID-19 cases and in the wake of the Fed’s dovish monetary policy decision.

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