Even though the U.S. stock market just experienced its biggest rebound since the 1930s, professional investors cautioned that more turbulence was likely. The past week proved them right.
The S&P 500 fell 2.3% during the past week, its biggest decline in almost two months, as a variety of economic reports revealed the extent of damage caused by the coronavirus pandemic. Retail sales plunged a record 16.4% in April, which was even worse than economists expected, while more people filed for unemployment. That brings the total to 36 million Americans who have filed for unemployment benefits since this crisis began.
The week ahead will bring some early reports for the month of May. That's particularly relevant as dozens of states across the U.S. have begun to reopen nonessential businesses and lift restrictions.
In addition to several data points about the housing industry, traders will monitor reports about manufacturing activity, a leading indicator of economic activity, and minutes from the Federal Reserve's most recent meeting. Here's what to watch — and how the news could affect your bottom line.
What's happening: Several closely tracked reports on the housing industry for the month of April are scheduled for release. On Tuesday, expect a report on the number of housing starts (the construction of new homes), followed on Thursday by the number of existing homes sold.
Not surprisingly, economists currently project both measures decreased — to levels last seen in at least 2015. But there are reasons to be optimistic that the slowdown in housing activity was just temporary.
In states that have reopened, buyers are coming back to the housing market much faster than expected, and mortgage applications jumped 11%.
Why it matters: Home buying and selling was mostly put on pause as a result of local shutdowns, but it appears that low mortgage rates are helping the housing market recover. Buyers appear more eager to purchase homes, though sellers remain more cautious. This time of year historically is busiest for the housing market, so traders are looking for confirmation that the slowdown in activity was just temporary.
What it means for you: Wall Street monitors the real estate market so closely because the housing industry generally makes up to 18% of gross domestic product (GDP), according to the National Association of Home Builders. The housing market is perhaps one of the best gauges of confidence, because consumers need to feel optimistic about their financial situations to justify such a big expense.
Consumer sentiment unexpectedly rose in May, according to the University of Michigan's index. And the massive stimulus measures undertaken by the government to sustain the economy amid the coronavirus pandemic appeared to have helped. If you haven't already, now it also a good time to refinance your mortgage since rates are lower.
Video by David Fang
What's happening: A monthly report that tracks 10 economic indicators is expected to be released on Thursday by The Conference Board. This report includes metrics like building permits for new housing units, stock prices, manufacturing activity, and consumer expectations for business conditions. Economists currently project this report fell for a third straight month in April, though less than in March.
Why it matters: Because this report is forward-looking, traders will monitor it for signs of what's ahead. In addition, two surveys of managers in the manufacturing and services industries are also scheduled for release on Thursday, and they'll give an early read as to whether sentiment is improving for May.
Experts believe the U.S. economy is in a recession, even if it's not official yet. Traders are trying to predict how severe and long-lasting the downturn will be. Two gauges from the Federal Reserve — one from the New York Fed and the other from the Atlanta Fed — are pointing to declines of more than 30% for gross domestic product (GDP) growth in the second quarter.
What it means for you: The economic toll from the coronavirus is clear. Traders are waiting to see if the Fed jumps in with more assistance. Minutes from the latest meeting in April also are scheduled for release on Wednesday, which could provide additional clues.
Traders are mostly focused on what's next, both with respect to states that are reopening and how quickly economic growth can rebound. And just like the past week, experts caution that there's likely to be continued turbulence ahead in the stock market outlook for May.
When it comes to your portfolio, though, it's important to keep a long-term perspective and avoid making emotional decisions. That's because some people on Wall Street are optimistic about the prospects for stocks in 2020 and believe the worst of the declines has passed — which partly explains why the market is already rebounding.
Finally, it's important to remember that downturns can benefit long-term investors and selling during a decline could be the biggest mistake of your investing career. In fact, right now could be a "real opportunity to create wealth."
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