Markets Continue to Assess the Widespread Effects of COVID-19
Markets continued to assess the widespread effects of COVID-19 and the evolution of humanitarian and economic policies. The President extended the Federal Government’s social distancing guidelines through the end of the month and indicated that the next couple of weeks were going to be “very painful.” The US COVID-19 task force also estimated that the virus could cause 100,000 to 240,000 deaths in the coming months. Separately, US intelligence reports suggest that China underreported the real number of coronavirus cases and deaths. Quarterly rebalancing helped put a bid into the markets early in the week as institutional investors rebalanced their equity and fixed income books. Oil prices soared on news that President Trump had brokered a deal between Russia and Saudi Arabia and further increased the gains on the prospects of an emergency meeting of OPEC. Economic data continued to show weakness as some lagging indicators started to incorporate the impact of the virus-induced economic shutdown. For the week the S&P 500 fell 2.08%, the Dow lost 2.70%, the Nasdaq shed 1.72%, and the Russell 2000 sold off by 7.06%. The US yield curve flattened with the 2-year note yield decreasing by four basis points to close at .19% and the 10-year bond yield falling by sixteen basis points to close at .59%. Gold gained $20.10 or 1.2% to close at $1645.40 an Oz. WTI Oil prices increased 31% over the week to close up $6.70 at $28.35 a barrel. We had a small tweak to the Strategic model series, where we moved out of some of our small-cap exposure and increase exposure to the healthcare sector.
President Trump announced that he would be introducing a 2trillion-dollar infrastructure spending plan aimed at reigniting the economy. Additionally, the White House is proposing a 600 billion-dollar relief bill for mortgage markets, the travel industry, and state governments. The President also indicated that there could be a delay to certain tariff payments for some industries. US oil industry executives also met with the President to see how the government could help the energy sector, which has been hit hard by a supply and demand shock.
To relieve the oil supply shock, the President tried to ease tensions between the Saudis and Russia. An announcement that both countries would reduce production by 10 million barrels a day sent oil higher by 34%. Also, OPEC announced an emergency meeting scheduled to take place virtually on Monday. There continues to be a fair share of skepticism that a production deal can be made, but most agree that an increase and steady oil prices would help the broader markets.
Economic data continued to deteriorate. The employment situation report showed that non-farm payrolls decreased by 701,000 and that the unemployment rate increased from the historic low of 3.5% to 4.4%. Initial jobless claims doubled over the week to 6.6 million. Consumer confidence came in better than expected at 120 but was down from the February reading of 132.6. ISM manufacturing indicates that the sector is in contraction with a reading of 49.1, which is down from February’s 50.1. 50 is the dividing line between expansion and contraction. ISM non-manufacturing came in at 52.5, which was better than expected but well of the February reading of 57.3. Most expect economic data to continue to be weak for the foreseeable future.
