Global markets: What to watch for in May

A Perspective from our Global Market Strategist

As we recently noted, April would be a critical month to gauge the global response to the COVID-19 pandemic. Across the board, it was a massive response, including significant monetary and fiscal stimulus from a variety of economies and widespread lockdowns designed to slow the rate of infection. But as we enter May, we are seeing differences in approach come to the fore — between countries, between localities, and between political parties.

How will we know which approaches are working to stem the rate of infections and to get people back to work? By examining the data. Here are some of the key issues that we will be watching in May:

  1. Infection rates:
    Some European countries have begun to roll back lockdown measures, and some states within the US have also begun to loosen restrictions. The concern, of course, is that a second wave of infections may arise as a result, especially given that a number of the state rollbacks are occurring in contradiction of White House guidance that a loosening of restrictions should occur after 14 consecutive days of declining infection rates.
  2. Earnings:
    We are in the midst of earnings season with 55% of companies in the S&P 500 Index having reported earnings, and 45% still left to report. Importantly, much of the first quarter brought relatively normal activity before the pandemic spread in earnest. Therefore, from our perspective, the most important part of this earnings season is the forward guidance — and there has been relatively scant forward guidance on earnings from companies.
  3. The US Employment Situation Report for April
  4. Negotiations about Phase 4 fiscal stimulus for the US:
    While the ink is barely dry on Phase 3.5 of fiscal stimulus passed just two weeks ago, I believe the US needs to see another fiscal package soon, particularly one that’s geared towards state and local governments, as well as additional support for small businesses.
  5. Possible re-ignition of the tariff war between the US and China
  6. Brexit negotiations
  7. Data reports:
    This economic data will give us a sense of where various economies are in terms of bottoming, in the case of most, and recovering, in the case of China.

*Earnings data quoted as of April 24, 2020.

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