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As we closed out 2019, the U.S. was experiencing some of the best financial conditions and employment numbers in history – if not for many decades. Since then, stunning conditions have crippled the U.S. economy. Over the past week, the masks of pandemic protection turned into the disguises of pandemonium. It was a painful thing for me to watch as riots and looting replaced peaceful demonstrations – a case made even more difficult for law enforcement as so many were wearing masks not only to shield themselves from the pandemic but also from identification. We now know that many of the fires and break–ins were coordinated efforts. While some younger folks see themselves as invincible, those seasoned with age or with families to protect find these developments greatly disturbing.

There was a point over the weekend where the White House was at risk of breech. Over 60 secret service agents were injured trying to control crowds and protect the area from protests that turned into anarchy. While stocks are still within the structure of a ‘V’ recovery since late March, the economy could remain in a bowl–shaped ‘U’ for some time – with too many elements still pointing down or sideways. The damage caused from rioting and social unrest exacerbates the recovery time and exasperates the law–abiding citizenry hoping for a quicker return to pre–pandemic conditions. To many of us, it’s just sad – and pays no honor or tribute to the memory of George Floyd. A restaurant that was set to reopen this week in Minnesota was destroyed by rioters over the weekend. There are many such stories and history tells us that riot–stricken neighborhoods can take years to recover. That comes on the heels of thoughts that the recovery might take much longer than previously thought from FRB San Francisco’s Mary Daly and others.

The Bond Market Review is not covering this as political opinion. It’s also a matter that greatly affects the economy, the mood of citizens, and the willingness for Americans already concerned with Covid–19 to leave their homes and support restaurants and local businesses. The Fed’s Beige Book showed very little economic recovery despite some reopening. Georgia was one of the first states to reopen but the Atlanta district experienced further declines. The key headline was: “Economic activity declined in all districts – falling sharply in most.” The report said there was optimism for reopening but “most contacts were pessimistic about the potential pace of recovery.” The report noted a “stark increase in inquiries about bankruptcy procedures from small retailers” in New England. Additionally, weak demand was forcing discounts, and safety compliance was raising costs. Declines were “especially severe” in hotels, travel, and tourism. The report also said there were a historically low number of oil rigs in operation. Another report showed private wages declining the most on record in April as the savings rate soared (from limited spending).

There’s certainly no ‘V’ in the economic data. The GDP forecasts reinforce the district outlooks and surveys from the Fed’s Beige Book. Q1 GDP was revised lower from –4.8% to –5.0% due to a sharp drop in private inventories – even though personal consumption was less negative at –4.69% versus an earlier –5.26%. However, it’s not Q1 that is of the greatest concern. Q2 estimates by the Fed are showing severe contraction. It’s not a question of reaching the back–to–back negatives that define a recession, it’s how negative Q2 will be. While the New York Fed is forecasting –35.53% GDP, St. Louis Fed is projecting –49.75% and the Atlanta GDP–Now forecast fell to –52.8% today. The 10–week total on job losses rose to 40.755 million and the May payroll report is due this Friday (06/05).

Looking Ahead

• Equity cycles show a general downtrend into June 18th with a high trend–change due near June 8th.
• Bond cycles show yields trending higher after a low near June 3rd.
• The FOMC will announce their next interest–rate policy decision on Wednesday, June 10th at 2 p.m. ET.

Treasuries, Agencies, and MBS

 Fed Treasury purchases have steadily tapered down from $75 billion on April 1st down to a targeted $4.5 billion per day this week. The Fed added $60.058 billion in purchases last week (through May 27th) to reach a $7.097 trillion in balance sheet size. Their buying of ETFs for corporate debt increased by $1.2 billion to around $2.98 billion through last week. Roughly 1/6 of purchases have gone to support non–investment grade debt. Overall, fixed income ETFs grew by a record $27 billion in May. Last week, yields fell by 1, 3, and 1 bps at 2, 5, and 10–years while 30–year rates were 3.5 bps higher. Today, yields fell .5 bps at 2–years but were .5, .5, and 4.5 bps higher at 5, 10, and 30– years. Over the past 2 weeks, MBS spreads (FNMA 30–year 2.5%) narrowed by 4 and then 6 bps.

The Treasury auctions continued to grow in size while also commanding record–low yields. Last Tuesday (05/26), a record $44 billion 2–years notes came at a record low of .178%. Demand fell versus April but was at a decent level. The buying group that includes foreign central banks accounted for 53.1% of the issue versus a prior 55.8%.


Treasury Yield Curve

2-Year: 0.170%

5-Year: 0.335%

10-Year: 0.660%

30-Year: 1.372%

Weekly Yield Change +.023%




Support 0.189/ 0.209/ 0.229/ 0.249

0.334/ 0.349/ 0.364/ 0.379

0.687/ 0.707/ 0.727/ 0.747

1.510/ 1.545/ 1.575/ 1.605%


0.150/ 0.130/ 0.110/ 0.090

0.305/ 0.290/ 0.275/ 0.260

0.667/ 0.647/ 0.627/ 0.608

1.456/ 1.426/ 1.396/ 1.366%



Confidence data stabilized and some manufacturing data rebounded. April may very well have been the abyss for some data while May is showing that many challenges remain. For instance, Dallas Fed Manufacturing Activity rose 24.5 points but only to –49.2; Richmond was 26 points higher, but only to –27; and Kansas City gained 11 points but was still at –19.

Bloomberg Consumer Comfort rose for the first time in 10 weeks, up .8 to 35.5 off last week’s 6–year lows. University of Michigan Sentiment rose from 71.8 to 72.3 and Current Conditions improved from 74.3 to 82.3. However, Expectations fell from 70.1 to a 7–year low 65.9. The Conference Board results were similar excepting that Expectations rose from 94.3 to 96.9. Confidence rose from 85.7 to 86.6 but the Present Situation retreated from 73 to 71.1. As covered earlier, Q1 GDP was revised down from –4.80% to –5.00%. However, Personal Consumption was less negative at –6.80% (versus –7.60% from the previous release). Q1 Core PCE was 1.60%.

MNI Chicago PMI (Purchasing Managers) fell from 35.4 to an 11–year low 32.3. The Fed’s National Activity Index tumbled the most in records going back 50 years. It fell from –4.97 to a record–low –16.74 – as 79 of its 85 components were negative. The ISM numbers were a little better. ISM Manufacturing rose from 41.5 to 43.1 and New Orders improved from 27.1 to 31.8. Their Employment reading rose from 27.5 to 32.1. Initial Jobless Claims rose by 2.123 million – taking the 10–week total to 40.755 million. However, Continuing Claims fell for the first time since the pandemic began – dropping from 24.912 million to 21.052 million.

Metro Home Prices rose .47% in March and accelerated (from 3.52%) to their best annual pace of 3.92% since December 2018 (S&P Case–Shiller 20-City). Their House Price Index rose from 4.16% to an annual pace of 4.35%. The FHFA House Price Index was only .10% higher for March and the Q1 House Price Purchase Index rose from 1.4% to 1.7%. New Home Sales were a little higher in April, but only because March data was revised lower. The March sales were revised from 627K to 619K annual units – leading to a .65% gain to 623K annual units in April. Pending Home Sales fell 21.8% in April (to the lowest level on records back to 2001). The year–over–year drop of 34.6% was the worst on record. Many buyers were said to have forfeited deposits. However, recent data has applications for home purchases at the highest levels since January. Construction Spending fell 2.90% in April.

Durable Goods Orders tumbled for a second month. March dropped 16.60% and April fell 17.20%. That was the worst drop since the financial crisis. Ex transportation, orders dropped by 7.40%. Orders for Capital Goods were expected to fall by 10% but were off by a lesser 5.80%. Wholesale Inventories rose .40% but Retail Inventories were off by 3.60%. The merchandise trade deficit (Advance Goods Trade) widened from $65 billion to $69.7 billion.

Inflation remains a non–issue at present. The PCE Deflator fell .50% in April, decelerating the annual pace from 1.30% to .50%. Ex food & energy, core Personal Consumption Expenditures dropped by .40% with the annual pace slowing from 1.70% to 1.00%. Personal Income rose by 10.50% in April for their largest increase on record – though the gains were probably driven by government checks. Spending fell the most on record, dropping by 13.60% as recipients held their stimulus funds and otherwise chose to increase savings. ‘Real’ Personal Spending fell 13.2%.

Tuesday is set for Vehicle Sales for May. Wednesday follows with MBA Mortgage Applications (which rose 2.70% last week) and a first look into May jobs from ADP Employment Change (private payrolls). The service–sector outlook (ISM Non–Manufacturing) and Factory, Durable Goods, and Capital Goods Orders are also due on the 3rd.

Thursday supplies the April Trade Balance (deficit), Q1 Nonfarm Productivity & Unit Labor Costs, Consumer Comfort, and two more reads into Friday’s May payroll report from Challenger Job Cuts and jobless claims. Friday gives us the May payroll numbers along with the Unemployment Rate that we think will top 19%. Other data includes earnings, hours worked, and the Labor Force Participation Rate. April Consumer Credit is due late Friday.


Stocks beat seasonal factors to see gains in May, and the ‘V’ shaped recovery from March 23rd remained intact – as equities ignored some ugly data and social unrest to climb a steep wall of worry. We rechecked our cycles and continue to expect weakness into June 18th (and July 1st). With the cyclic outlook for 2020, we don’t see buy–and– hold as the best strategy. ‘Switchers’ should outperform. That said, the S&P closed 2.53% above the highs made on May 20th so the hold crowd appears to be winning for now. The S&P rose 4.53% in May for the best ‘May’ gains since 2009. The Dow added 4.26% and the Nasdaq rose 6.75%.

A report showed how little breadth there is in the market. 5 stocks (AAPL, AMZN, FB, GOOGL, and MSFT) are up 15% for the year while the other 495 S&P stocks are down around 8%. Those 5 stocks also account for 20% of the indexes market cap – the highest concentration on record. Another report showed that S&P 500 companies had record declines in profits in Q1 2020.

Last week, the Dow Industrials gained 3.75% or 917.95 points to close at 25,383.11. The Dow gained .36% today. The Nasdaq rose 1.77% and beat the Dow with a stronger .66% increase today. The S&P gained 3.01% and gained .38% today. The Dow Transports gained 5.90% but lost .04% today. Bank stocks outperformed with a 9.43% gain and a healthy 1.95% gain today




Resistance: 25,720/ 26,044/ 26,368/ 26,694

9,573/ 9,671/ 9,769/ 9,868

3,070/ 3,099/ 3,127/ 3,155


25,404/ 25,087/ 24,770/ 24,457

9,476/ 9,379/ 9,283/ 9,187

3,044/ 3,017/ 2,990/ 2,962

Other Markets

 As with some economic data, Crude Oil has also risen from the abyss. Crude gained 6.74% last week to top off a record monthly gain of 88.38% in May. That was the best monthly gain since the 44.6% rise in September 1990 – near the onset of the Gulf War. Crude lost .14% today. Commodities gained 2.09% last week and another .08% today. Gold rose .08% and added .05% today. The U.S. Dollar lost 1.55% last week and was .053% lower today. The Japanese Yen lost .18% but rose .22% today. The Euro surged 1.83% last week and added another .32% today. Corn gained 2.44% but lost .77% today. On the other hand, Cotton lost .03% last week but then jumped 4.29% today.

“Science is organized knowledge. Wisdom is organized life.” Immanuel Kant

“Throw your heart over the fence and the rest will follow.” Norman Vincent Peale


Doug Ingram, Financial Economist


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