April 13, 2020

Weekly Market Commentary April 6th to April 10th 2020

The Federal Reserve created a new lending facility to provide $2.3 Trillion in loans to small and mid-sized businesses. It also loosened restrictions on the types of debt it would purchase in the open market to maintain ample market liquidity, including bonds issued by “fallen angels” (companies with credit ratings recently fallen below investment grade.)

Initial Jobless Claims in the first week of April were 6.6 million, following a revised 6.9 million the previous week. There have been nearly 17 million new filings for unemployment in the U.S. since the start of the pandemic. Massive layoffs of workers from shuttered businesses are expected to swell the unemployment rate in the U.S. well into double digits in the coming weeks.

It is not surprising that the NFIB Small Business Optimism Index experienced the sharpest decline in decades in the March report. The shuttering of small businesses has created worry and owners are scrambling to make decisions that are best for them and their employees based on various types of relief being made available through increased unemployment benefits or forgivable loans for those opting to continue to operate in some manner if possible.

Inflation in the U.S. fell off in March along with declining oil prices. The headline Consumer Price Index (CPI) reading declined -0.4% for the month to a 1.5% year-on-year level, down from the 2.3% prior reading. Core CPI was -0.1% to a 2.1% annualized level, from 2.4%.

Equity markets rallied in the holiday-shortened trading week on news that the spread of the deadly Coronavirus was flattening in some areas and massive incremental stimulus measures being put in place. The S&P 500 was higher by 12.1% to 2,789. The NASDAQ advanced by 10.5% to 8,153. The yield on the 10-Year U.S. Treasury note climbed by 13 basis points to 0.73% in the risk-on environment. Investors were net sellers of U.S. Treasuries driving prices down, yields up.

Key economic releases next week include Retail Sales, Initial Jobless Claims and Housing Starts.