FINANCIAL MARKET UPDATE 4.7.2020

STORY OF THE WEEK

have we seen the bottom?

After nearly six weeks of relentless declines, the stock market appears to have found a bit of relief. The S&P 500 hit its lowest level on March 23rd, declining nearly 34% since the selloff began in Mid-February. While volatility remains elevated, the index has gained about 19% from those lows. After this much needed reprieve, the obvious question is: have we seen the bottom?

Recent government action justifies an improvement in outlook. The Federal Reserve responded aggressively as it lowered rates to near zero and introduced a handful of programs to improve liquidity in the market. Congress also came through on the fiscal front with the $2.2 trillion CARES Act rescue package. This combined policy response exceeds what was done to fight the Financial Crisis, and there are indications that more stimulus may be in the works. In addition to the government support, there has been some positive news coming out of Europe as well. Recent reports suggest measures taken there may have slowed the spread of the virus.

These developments are indeed welcome, but they do not yet confirm that we are out of the woods. Economic data is just beginning to reflect the impact of the outbreak, and corporate earnings releases, which will likely be ugly, won’t begin for another week. Additionally, the spread of the virus has not yet peaked in the United States. So while the news flow for the economy, businesses, and overall public health has been really bad, it is very likely to get worse.  It is certainly possible that the stock market has turned the corner, as the positive developments outlined earlier represent a large improvement in the situation. Still, investors should be emotionally ready for the possibility of more pain before the recovery firmly takes hold.

WEEK IN REVIEW

  • The labor market continued to provide evidence of the economic toll caused by the outbreak, as the Bureau of Labor Statistics published their monthly jobs report on Friday. Employment in the U.S. decreased by 701,000 during March, the largest monthly decline since March of 2009. The unemployment rate increased from 3.5% to 4.4%. To make matters worse, due to the timing of the report, it does not include the impact of the millions of new unemployment claims from the latter half of the month. As a result, economists expect another grim report next month.
  • Other data published on Friday showed a mixed picture for activity in the services sector of the economy. The Institute for Supply Management’s Services Index fell to 52.5 from 57.3, versus an expectation of 43 (anything below 50 signals contraction). A similar survey produced by IHS Markit fell to 39.8 from 49.4.
  • After a dramatic spike last month, credit spreads appear to be stabilizing. Credit spreads measure the additional yield on a corporate bond, relative to a Treasury bond of similar maturity. Spreads represent additional compensation for investors for taking the extra risk. In March, spreads on investment grade bonds jumped to the highest level since 2009. Following the measures taken by the Federal Reserve to improve market liquidity, spreads have halted their ascent and have begun to decline.

HOT READS

Markets

  • After a Frenzied Rush to File For Small Business Loans, Entrepreneurs Nervously Wait on Bank Approvals (CNBC)
  • Fed Preparing to Finance New Small-Business Payroll Loans (WSJ)
  • U.S. Employers Cut 701,000 Jobs in March (WSJ)

Investing

  • The Bear Necessities You Need For a Bear Market (Zweig)
  • I Became a Disciplined Investor Over 40 Years. The Virus Broke Me in 40 Days (NYT)
  • Would You Rather: Buy Too Early or Buy Too Late In a Bear Market? (AWOCS)

Other

  • Shipping Delays? Out-of-Stock Items? Amazon Isn’t The Only Shop Online (WSJ)
  • Car Insurers Give Millions in Coronavirus Refunds (WSJ)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy