Conway’s QuickTake: Week of March 23, 2020
The latest on coronavirus and the economy:
Coronavirus and Response
The pace of the spread of the COVID-19 coronavirus continued to accelerate globally. As of early this morning, there were 341,722 confirmed global cases and 14,765 deaths. Although China is starting to report days of no new cases, the growth of cases in most other nations is expanding. As a result, nations around the world are increasingly enforcing quarantines of their citizens. In the U.S., California and New York have strengthened emergency measures to restrict movement to only essential activities and most nations have also restricted cross-border travel.
Several European countries, including Italy and France, appear to be hit particularly hard and are facing overwhelmed hospitals and limited resources to cope with the virus. In some Asian countries, the virus’ spread appears to be slowing after strict measures to contain the spread. In addition, early reports have indicated several promising vaccines currently being tested, though they will need to be tested in human trials for safety. In one piece of good news, the individual tax filing deadline has been moved from April 15th to July 15th in the U.S.
With much of the world’s commerce grinding to a halt, central banks have been swift in implementing monetary stimulus. In addition to lowering rates to near-zero, the Fed has sought to inject liquidity through ramped up asset purchases. This morning, the Fed announced expanded asset purchases of Treasury and mortgage securities that were approved one week ago and said that it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week to help bolster those markets.
The ECB also stepped in to help relieve the economic pressures from the current crisis, announcing an additional €750 billion asset purchase program of government and corporate debt. They have acknowledged no limits on future policy.
The oil market has seen unprecedented volatility after OPEC ramped up production and cut prices amidst slowing demand. The U.S. has since entered the fray, potentially limiting production which could help resolve the price war between Saudi Arabia and Russia. Domestically, the number of unemployment claims is expected to sharply rise in the coming weeks. Low-wage workers and small businesses are expected to be amongst the hardest hit. In response, political parties have banded together to develop a potential $1 trillion+ stimulus package that could give direct payments to households. The first iteration of this packages did not make it through the Senate yesterday. There was some concern by Democrats that the package favored corporations and did not provide enough aid to individuals or smaller businesses.
Few asset classes outside of cash have been immune from recent volatility. Stocks have been hit the hardest, although many bond markets have demonstrated large price swings exacerbated by flows. Within U.S. equities, the S&P 500 Index and Dow Jones Industrial Average fell approximately 15% and 17% for the week and 29% and 33% so far this year, respectively. Small-caps and cyclical industries (such as energy, financials, and industrials) have been hit the hardest while more defensive sectors (such as staples and healthcare) have fared better. This has translated to meaningful outperformance of growth over value.
International equities have generally lagged U.S. counterparts in U.S. Dollar (USD) terms. This has been exacerbated by dollar strength as investors have fled to it as a global reserve currency. A rush for cash has placed unique pressures on bond markets. While credit sensitive bonds are expected to suffer during economic downturns, governments and municipals have also seen unusual declines as yields rose off lows and spreads widened following large-scale redemptions. Many asset classes are reaching, and in some cases surpassing, valuation levels not seen since the 2008 financial crisis. While the timing of a recovery remains murky, there is large upside potential for many risk-assets following some clarity on global containment or vaccination against the coronavirus.
Tuesday, March 24, 2020
•US – Markit PMI Flash Numbers (March), New Home Sales
•Euro Area- Markit PMI Flash Numbers (March)
•Japan – BoJ Monetary Policy Meeting Minutes
Wednesday, March 25, 2020
•Germany – Ifo Business Climate (March)
•Britain – Inflation Rate (YoY) (Feb)
•US – Durable Goods Orders, Monthly (Feb)
Thursday, March 26, 2020
•Germany – GfK Consumer Confidence
•Britain – Bank of England Interest Rate Decision
•US – GDP Growth Rate, Q4 2019, Final numbers
Friday, March 27, 2020
•US – Personal Income Monthly change (Feb)
•US – Personal Spending Monthly change (Feb)
Sources: Trading Economics, Johns Hopkins University, Bloomberg
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 Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.