Weekly Market Commentary March 23rd to March 27th 2020
A failure by the Senate to agree on the terms of an economic stimulus package over the weekend and into the start of the week kept stock market volatility levels elevated. Stocks went on a roller coaster ride with a sell off on Monday followed by a meteoric rise in the next three sessions predicated on expectations of approval and rollout of a $2 Trillion stimulus package. The bill was approved by the Senate on Thursday and House and President on Friday. The back-to-back gains on Tuesday to Wednesday were astonishingly the first such consecutive stretch of positive trading sessions in five weeks. A third day of gains on Thursday advanced the Dow by over 21% and S&P 500 by over 17% from the lows of Monday. The rally ground to a halt on Friday on perhaps a case of “buy the rumor, sell the news”. For the week the S&P 500 Index advanced an impressive 10.3% to 2,541. It still stands -25.0% lower than the peak on February 19. The NASDAQ advanced by 9.1% and Dow by 12.8% on the week.
The yield on the 10-Year US Treasury fluctuated along with on again, off again, risk appetite. The bellwether Treasury traded in a range of 0.68-0.89%, settling at 0.69% in the final trading session. While the shape of the Treasury yield curve has normalized with a 43-basis point spread between the 2-Year and 10-Year Treasuries, the front end of the curve was far from normal. Both the 3-month and 6-month Treasury bill yields fell into negative territory this week before closing modestly positive. Investors flocking to stable NAV money market funds from floating NAV funds has caused overwhelming demand for short-term Treasuries, driving yields through the zero-lower bound.
Weekly jobless claims spiked to 3.25 million last week, well ahead of estimates and the previous record of 695k from the early eighties. The closure of non-essential businesses around the country has remarkably derailed the robust U.S. labor market in a matter of days.
As expected, the Markit PMI Manufacturing Index showed a deterioration in U.S. manufacturing to a modest contraction level of 49.2. The Services reading however, plummeted from over 50 to 39.1 as bars and restaurants around the country have closed and citizens heed warnings to remain at home.
Consumer Confidence has turned markedly negative as a consequence. The University of Michigan’s Consumer Sentiment Index slumped from 101.0 to 95.9 in the preliminary March survey and 89.1 in the final reading. Job losses and a shuttering of retail America led to the largest monthly decline of the survey since 2008.
Next week all eyes will be on the mechanics of the stimulus package and ongoing spread of the virus. We’ll be following the weekly jobless claims report as well as the monthly updated Nonfarm Payrolls including the headline Unemployment level. We will also be paying attention to the broader consumer confidence data provided by the Conference Board.