Weekly Market Commentary April 20th to April 24th 2020
The world continues to suffer from both the physical and economic effects of COVID-19 and we are starting to see interruptions in commodities pricing and availability, both directly (food) and indirectly (energy) related to the virus. Food chains are being impacted as large production facilities are being shut down in the wake of local virus outbreaks; and oil prices have plummeted as the supply far outweighs the demand due to worldwide stay-at-home regulations. Producers are simply running out of room to store all the excess petroleum. Grocery shelves are thinning out and oil prices are down over 25% on the week. That said, there is evidence that the earliest hit areas of the country are starting to show signs of curve-flattening.
Congress passed round two of economic assistance known as the “Paycheck Protection Program and Health Care Enhancement Act” early in the week. In summary, the $484 billion stimulus package provides $310 billion in small business assistance, $75 billion for hospitals, and $25 billion for testing (the key to reopening businesses generally agreed upon by state Governors). Look for additional packages to come as the longer-term economic effects of the shut-down continue to be revealed.
In a lighter week of economic releases, New Home Sales and Existing Home Sales for March disappointed by coming in at -2.5% and -8.5% to their estimates respectively. Initial Jobless Claims for last week came in at another 4.4 million bringing the total to an astounding 26.5 million in the past five weeks. Both the manufacturing (36.9) and services (27.0) PMI levels for April came in well into contractionary territory (defined as less than 50); and Durable Goods orders followed suit by getting walloped at -14.4%. A lone optimistic statistic was the ex-transportation figure which was -0.2% when consensus called for -5.0%. Finally, the University of Michigan Consumer Sentiment not only beat the consensus but also the range, coming in at 71.8 indicating that despite the ravages of COVID-19, some optimism about the economy exists. Next week, look for Q1 GDP, Pending Home Sales, Weekly Jobless Claims, Personal Income and Spending, and Core Inflation.
In the markets, all three major equity indices were down slightly for the week. The S&P500 dropped -1.3%, the Dow Jones Industrial Average dropped -1.9%, and the tech-heavy NASDAQ came in almost flat at -0.2%. More importantly, volatility declined, an indication that the wild ride of stock activity a few weeks back gets further away in the rearview mirror. In the fixed income markets, the bellwether 10-Year US Treasury rallied and finished the week with a yield of 0.60%.
We hope you continue to stay safe and healthy.