Conway’s QuickTake: Week of April 13, 2020
Here’s What Happened Last Week:
U.S. Equities rose throughout the week as preliminary signs indicated virus cases were beginning to plateau. The S&P 500 advanced by 12.2%, the largest weekly increase since 1974. All sectors within the index appreciated on economic optimism, with energy (13.7%) and financials (19.0%) rebounding from sharp declines over the past several weeks. Surprisingly, the strong gains brought most large-cap indices out of bear market territory, to less than 20% of their high levels reached in mid-February. Economists continue debate the trajectory of the recovery over the next few months and quarters, but last week provided a strong start. Elsewhere, small-caps led large-caps and value beat growth. These performance figures are typical of an economy emerging from a recession or rough patch.
The two most prevalent economic-related stories of the week were starkly polarizing to each other. On one hand, the Labor Department reported an additional 6.6 million initial jobless claimed were filed the week ending April 4th, right below the all-time record from the week prior. This means the past three weeks of jobless claims total almost 17 million, more than 10% of the U.S. workforce. The April unemployment rate released in early-May will surely reflect these trends. On the other hand, the Fed swiftly announced an even larger stimulus program on Thursday morning worth $2.3 trillion in loans offered to small businesses nationwide. The Fed also stated it will encourage investments into lower-quality debt through the Term Asset-Backed Securities Loan Facility (TALF). The government is pulling every string to curtail the economic slowdown, and at an aggressive pace to boot. These sudden, strong actions coupled with attempts to “flatten the curve” are keeping investors cautiously optimistic.
International Equities also performed well last week, as European deaths from the coronavirus slowed and leaders indicated that localized lockdowns may be lifted in the future on the backs of controlled overall infection curves. Developed non-U.S. regions (8.3%) outperformed emerging markets (6.8%), as represented by their MSCI broad indices. Although widespread concerns around economic slowdowns and even recessions exist, equity indices in Japan and China also strongly appreciated; the MSCI Japan Index rose by 7.7% and MSCI China Index by 4.1% in U.S. dollar terms.
In Europe, finance officials have yet to reach terms on a Eurozone fiscal stimulus package after several hours of discussions. Germany is forecasting its national GDP to shrink by more than 4% this year, and its unemployment may spike to around 6%. However, it does anticipate a rapid recovery in 2021 once all measures are in place and conditions rebound. In Japan, a recession is all but guaranteed given the impact of the near-forgotten U.S.-China trade war coupled with the virus impact in the most recent quarter. To combat this, Prime Minister Shinzo Abe announced a monumental ¥108 trillion stimulus package ($1 trillion), representing 20% of Japan’s entire national economic output. On a positive note, China officially ended the lockdown in the city of Wuhan and many residents resumed normal daily interactions, hinting that life can quickly revert back to its pre-virus status.
Credit Markets increased throughout the week despite the rise in bond yields. The benchmark U.S. Treasury 10-year yield rose through Wednesday and fell slightly back on Thursday to end the week at 0.72%. Typically bond prices fall when yields rise, but during last week the renewed demand outweighed the increasing levels of new issuance supply in many bond sectors including investment-grade and high yield corporates. After recently struggling, the municipal bond market rebounded, specifically being strengthened by the Fed’s ability to offer bond liquidity when and where it’s needed. The Bloomberg Barclays Municipal Bond Index rose by 1.75% expressing this attractive incentive. High-yield bonds performed particularly well last week after the Fed pledged to buy recently downgraded corporate bonds.
Wednesday, April 15, 2020
•US Retail Sales (March)
•Bank of Canada Interest Rate Decision
Thursday, April 16, 2020
•US Housing Starts, Building Permits, Jobless Claims
•China GDP, Industrial Production and Retail Sales figures
Friday, April 17, 2020
•Euro Area inflation figures
Resource of the Week:
For many people, working from home has become a reality since the lockdown mandate was instituted by the government. This episode from Masters in Business highlights how different people have coped with this recent change, and are even considering adapting their habits to capitalize on new opportunities. Featured speakers include Daniel Gershburg, a real estate attorney in New York City whose story is quite amusing and relatable to many, and Pat LaFrieda, the CEO of a meat wholesaler based in northern New Jersey who believes that panic rather than the virus itself may have a bigger impact on the country.
Sources: Trading Economics, Bloomberg, The WSJ, T. Rowe Price Global Markets Weekly Update, Business Insider
Data in this report is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. It is provided for your information and guidance and is not intended as specific advice and doesn’t not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.