2 Trillion-Dollar Fiscal Package Brings a Positive but Still Volatile Week
Market Recap Week ending 3.27.20
It was another volatile week on Wall Street. The Federal Reserve started the week off with its 3rd emergency meeting where they announced an open-ended quantitative easing initiative. A 2 trillion-dollar fiscal package also meandered through Congress and was eventually approved by both houses of Congress and later signed by the President. The markets rallied on the double-barreled stimulus measures and had the best week of returns since 1933. The S&P 500 gained 10.3% on the week but still is down 21.3% on the year. The Dow led with a 12.8% return for the week, the Nasdaq rose by 9.1%, and the Russell 2000 added 11.7%. Safe-haven assets also rallied on the week. The 2-year note yield fell fourteen basis points to close at 0.23% while the 10-year bond yield fell by nineteen basis points to close at 0.75%. Gold gained ~9% or $140, to close at 1625.30 an Oz. Oil continued to struggle, closing down 8.8% or $2.08 at $21.65.
Liquidity issues in several credit markets induced the Federal Reserve to have its 3rd emergency meeting. On Monday, Federal Reserve President, Powell announced that the Fed would continue to purchase US Treasuries, and would start buying Municipal bonds, Investment Grade Corporates, and also Investment Grade Corporate Exchange Traded Funds in amounts needed to stabilize the market. The opened ended nature of the amount the Fed will pump into the system coupled with the purchases of investment-grade paper catalyzed investors to step in and buy risk assets. Additionally, Powell, in a subsequent interview, assured investors that the Fed had plenty of other alternative initiatives in its toolbox if needed.
Separately, Congress went back and forth in negotiations on a 2-trillion-dollar fiscal stimulus package aimed at helping households, businesses, and aid to the fight against COVID-19. The package was signed into law on Friday. While the magnitude of the fiscal response is impressive, the logistics of how relief will be delivered and the timetable of when this relief will come remain question marks. Additionally, some have already suggested this package will not be enough, and more will be needed down the road.
The move higher this week was historic and like the losses posted over the last few weeks came very quickly. The velocity of these moves has been incredible. On a technical front, the S&P 500 retraced 50% of its losses, which is generally what one might expect in a relief rally. The question now is: does the market need to go and retest the lows to move higher eventually? On a fundamental basis, we are watching credit spreads which have compressed nicely with the Fed’s action. We will also be looking for guidance on the earnings front, although most agree, the ability to forecast earnings right now is quite difficult. Economic data will also start to paint the picture of the damage done. This week we saw consumer confidence fall, and we saw a massive surge in unemployment claims that will undoubtedly continue to rise in the coming weeks. All eyes will continue to be focused on the rate in which the Coronavirus is spreading and on how effective the initiatives taken to curb the spread have been to flatten the curve. Our investment teams continue to monitor the markets on all of these fronts. Volatility is going to be with us for the foreseeable future as the market tries to digest all of the unknown variables out there right now. Currently, VIX, a measure of volatility, sits above 60, which is off its recent highs but still well above its normal levels, which indicates investors think we could continue to see 6+% moves in the market.
