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S&P 500 Continues to Climb Following Latest Fed Announcement

The S&P 500 Index rebounded dramatically Monday following the Federal Reserve’s (Fed) announcement that it would start to buy a portfolio of individual bonds and is off to a solid start again this morning. Stocks got an additional boost this morning from a very strong retail sales report and optimism about a COVID-19 treatment.  International stocks were also broadly higher overnight, with Japan’s Nikkei up over 4% and European markets showing solid gains at midday.

Retail sales bounce

After falling a record 16.4% in April, retail sales bounced back a record 17.7% in May, as the economy continued to open back up. This follows recent improvements we’ve seen in services, manufacturing, and consumer confidence. Of course, these bounces in many cases were coming off some of the lowest levels in history, so it is important to put things in perspective.

What a reversal. 

Stocks were down significantly yesterday near the open, then reversed much higher as the day progressed. At the lows, the S&P 500 was down 2.5%, but managed to close in the green. The only two times it has done that in the past 10 years were March 19, 2020 and December 27, 2018.

Rates historically rebound after dramatic declines. 

At the end of the first quarter of 2020, the 10-year Treasury yield had fallen more than 1.5% over the trailing year for only the sixth time since 1990 using quarterly data. Looking back, every other time that happened the 10-year yield rose over the next year every time, averaging 0.92% higher.

COVID-19 news

Confirmed US cases rose 0.95% on Monday, up from 0.90% on the same day last week. That suggests stalled progress nationally, but the proportion of positive tests dipped to 4.1%, near the bottom of the recent range, while New York’s positive rate over the past week was just 1.2%. At the same time, positive test rates in Alabama and Arizona are over 10%. The number of reported infections in Beijing’s latest outbreak reached 106 (Source: COVID-19 Tracking Project).