Slowdown in the Spread of COVID-19 Leads to Investor Optimism
Market Recap week ending 4/9/2020
A slowdown of new coronavirus cases stoked investor optimism that the economy could reopen sooner rather than later. Comments out of the coronavirus task force suggested that initial death estimates could be materially lower due to the social distancing measures that have been taken. The S&P 500 had its best weekly return in 45 years, increasing 12.1% for the holiday-shortened week. The Dow gained 12.67% while the NASDAQ increased by 10.6%, and the small-cap Russell 2000 inked at 11.7% gain. The US Treasury curve steepened with the 2-year note yield increasing by three basis points to 0.22%, and the 10-year bond yield increasing by fourteen basis points to 0.73%. Gold was well bid, increasing by $105.50 or 6.4% to close at $1750.90 an Oz. Oil continued to be volatile as Saudi Arabia, Russia, and OPEC tried to agree on production cuts. WTI settled down 18% to 23.01 a barrel. We had a couple of changes to our models last week. The Foundations Core and Smart Core models had their quarterly rebalance, where we modestly increased the risk to the models by increasing our exposure to equities and increasing our allocation to investment-grade credit. In the Economic Trends and Flex model series, our economic indicators have flashed an impending recession and moved to a hedged state in the models by reducing equity exposure and increasing our position in mid-duration US Treasuries. Please let us know if you have any questions regarding these changes.
It was another volatile week on Wall Street. The coronavirus continued to dominate headlines, and it appears that the social distancing measures taken have helped stem the pace of new cases. Congress continues to debate over more fiscal stimulus with the Senate and Lower house offering different plans. The Federal Reserve also announced another set of measures, and Fed Chairman Powell reiterated that he would use the full power of the central bank “forcefully, proactively and aggressively.” The Fed announced they would provide 2.3 Trillion in emergency lending to businesses and municipalities. They also announced that they would be buying Junk Bonds, Collateralized debt obligations, and ETFs. The moves are unprecedented and will likely induce moral hazard within certain parts of the market.
On the economic front, jobless claims increased by 6.06 million for the week. 13.5 million jobs have been lost over the last three weeks, and estimates expect more to be lost over the coming weeks. Preliminary April Consumer Sentiment cratered to 71 versus forecasts of 79.3 and much lower than the March figure of 89.1.
