Last week shut the books on May, leaving just one more month before we close out the second quarter of 2020. All of the major U.S. equity indexes continued to regain ground that was lost in February and March to the Covid-19 pandemic.
I'd point out the magnitude of May's gains was smaller than those in April, when all four major market indexes jumped 11% to 15.4% vs. March. The market's move higher in April was spearheaded by the Fed's latest round of monetary stimulus, as well as expected federal stimulus, a pretty effective stock market prescription.
May's sequential increase reflected expectations associated with the reopening of the global economy, but those expectations were tempered late in the month by rising U.S.-China tensions and the growing number of protests around the U.S. Despite the April to May rebound, only the S&P 500 finished the first five months of 2020 down 5.8%, while the Dow Jones Industrial Average limped even further behind, down 11.8%. By comparison, even though the Real Money Post Industrial Average (RMPIA) lagged behind in May, rising 3.2% for the month, it finished well ahead of those market barometers with its 3.3% increase for the first five months of 2020.
Digging into RMPIA's May performance, its gains were led by roughly half of its constituents rising higher than the S&P 500's May move of 4.5%. This includes the 26% climb by PayPal (PYPL) shares and the 16.5% move at Regeneron Pharmaceuticals (REGN) . Those gains, however, were mitigated principally by nearly a dozen constituents rising less than the S&P 500 and May declines for both Gilead Sciences (GILD) and Amgen (AMGN) . For the first two months of the June quarter, RMPIA standouts also included Facebook (FB) and the other 10 constituents that rose in excess of 20%. It was the strength in those share prices that paved the way for RPMIA to rebound 17.5% in April in May.
The coming weeks will bring us the May-facing economic data that will help fill in the blanks on the economy's vector and velocity, as well as provide some signs for how it may fare in this month. While we are hopeful for some degree of sequential improvement relative to April, we should recognize the May data will likely be comparatively worse than that for March. The May ISM Manufacturing Index bore that view out as the headline index recovered to 43.1 from 41.5 in April but as expected came in well below March's 49.1 reading. On a positive note, the order component of the May ISM manufacturing index rebounded to 31.8 from April's 27.1, but it also suggests a slow recovery, given the distance to the March order reading of 42.2 and February's 49.8. The May Caixin China General Manufacturing PMI returned to expansion territory, hitting 50.7 up from April's 49.4 reading, but demand conditions remained subdued as new work declined in May due to a "notable fall in export orders."
I suspect that reflects the May impact of the pandemic felt in the U.S. and Europe, which only began to reopen toward the end of the month. Odds are investors will increasingly focus on coming data, both economic and anecdotal, to confirm that the reopening of the U.S. and other countries is translating into a pick-up in consumer spending and the overall economy.
In the coming weeks, we expect to hear far more details about the economic reopening, and while I'm cautiously optimistic, the truth is we will be hearing about successes as well as setbacks. For example, while Visa (V) reported its total May U.S. payments fell 5% year-over-year, a 13 percentage point improvement vs. April, it's now reported that RMPIA constituent Starbucks (SBUX) will "limit employee hours to match pared-back operations at its U.S. stores" because it doesn't expect sales to return to pre-Covid-19 levels until "the fall."
As we approach the middle of the year, a number of RMPIA's constituents are well positioned for the second half of the year that contains the back to school shopping season, Amazon's (AMZN) Prime Day and, of course, the holiday shopping season as well as Apple's (AAPL) annual new iPhone launch. We should also see a step up in 5G-related activity that bodes well for a number of RMPIA constituents, as well. Despite those positives, potential headwinds bear watching for and in the near-term that means consumer spending trends and U.S.-China trade tensions.