The U.S. stock market rose again after two weeks of declines, and one major benchmark — the Nasdaq Composite — has now returned to positive territory for the year. While a historic rally in stocks continues, the toll of the coronavirus pandemic on the economy is becoming clearer.
The past week brought reports showing the extent of weakness across a variety of measures. U.S. employers shed 20.5 million jobs in April and the unemployment rate jumped to a 14.7%, the highest level since the Great Depression. Orders for manufactured goods fell even more than economists estimated. And consumer debt, which includes credit cards, auto loans, student loans, and mortgages, hit a record high of $14.3 trillion in the first quarter.
As traders continue to wager that the worst of the economic declines are over, the S&P 500 is now down less than 10% year-to-date. And even though professional investors caution there could be more declines ahead, this benchmark already is trading higher than where Wall Street strategists forecasted in April that it might end the year.
In the week ahead, traders will await two different measures of inflation, along with a monthly survey of small business owner sentiment. Here's what to watch — and how the news could affect your bottom line.
What's happening: A key measure of inflation, the consumer price index (CPI), is scheduled for release on Tuesday. This report tracks the average change in consumer prices, or what you pay for various goods and services, including food and housing. On Wednesday, expect a report focusing on the other side, producers, and the average change in prices these companies set for the products these sell.
Economists currently project a slight deincrease in consumer prices in April compared with March and that CPI rose at an annual rate of just 0.5%, which would be the least since 2015. Meanwhile, economists forecast a third straight decline in producer prices in April.
Why it matters: The lack of inflation isn't so surprising given that American consumers and businesses have curtailed spending as a result of the pandemic. An unprecedented plunge in oil prices has dragged down prices more broadly.
Still, part of the Federal Reserve's role is keeping prices in check and closely monitoring changes in prices for goods and services. Low inflation was among the reasons policymakers cut interest rates in 2019, and now with rates near zero, some people are even debating the idea of negative interest rates. If that were to happen, in theory, you'd pay your bank to keep your money and a credit card company would pay you to spend.
What it means for you: When prices go down, your dollars will stretch further when buying groceries or paying for services. Even so, persistent deflation is one of the indicators economists will monitor for indication that the economy is in a depression rather than a recession. The inflation rate also affects how much you earn and the value of your savings, and it's important to broader economic growth.
Video by David Fang
What's happening: A monthly report that measures confidence among small business owners is scheduled for release on Tuesday by the National Federation of Independent Business. This survey looks at 10 different components, like whether business owners plan to hire more workers or spend more money, and how they feel about the economy.
This survey will provide important context in the wake of the $660 billion Paycheck Protection Program meant to help small businesses. A Fed study found that small business loans are not going proportionately to the hardest-hit areas, while a CNBC/SurveyMonkey Small Business Survey showed that many small business owners say they haven't received the relief they need.
Why it matters: Businesses with fewer than 500 workers account for almost half of private sector employment, so traders closely monitor how these business owners feel. In particular, they'll pay attention to survey questions about the future that might signal how small business owners are weathering this shutdown. As more states begin to reopen their economies, many small business owners will be able to return to some version of normal. And despite job losses, some experts see reason to be optimistic.
What it means for you: Hiring plans are good to track because they reveal important clues about the overall health of the U.S. economy. That's because small businesses account for nearly half of gross domestic product (GDP). And again, while many experts believe the economy already is in a recession, the question is how severe and long-lasting the downturn will be.
Video by David Fang
Earnings season is winding down, with less than 20 companies in the S&P 500 scheduled to report results in the week ahead. In addition, the retail sales report for April is due, though Wall Street already expects this to show big declines as a result of shutdowns.
Instead, traders are mostly focused on what's next, both with respect to states that are reopening and how quickly economic growth can rebound. And 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.
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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