This Week's Market Moves
As markets continue to digest the economic impact of the coronavirus outbreak, here are a few market highlights from last week:
After a brief rise leading into quarter end, equity markets closed the week with modest losses. For the week ending April 3rd, the Dow slid 2.7%, the S&P 500 index was down 2.1% and global equities were off 2.8%. The worsening jobs outlook and the spike in the coronavirus death toll weighed heavily on stock prices.
The yield on the 10-year Treasury note fell 12 basis points during the week, as fears over the impact of COVID-19 on the global economy weighed heavily on investor sentiment. Treasuries traditionally behave as safe-haven assets, outperforming riskier asset classes (i.e., equities) during periods of market or economic stress.
The U.S. dollar continues to strengthen despite the Federal Reserve cutting interest rates to near zero in recent weeks. The elimination of the sizeable yield premium the U.S. had over other global developed markets would typically see the U.S. dollar weaken. However, the safe-haven demand for Treasuries and the U.S. dollar remain strong for the time being.
Over 6.6 million people filed for unemployment insurance this week. This brings the total to more than 10 million Americans over the last two weeks. The unemployment rate also saw a steep rise, jumping from a nearly 50-year low of 3.5% to 4.4% in March. However, the unemployment rate likely understates the true extent of job losses, due to the sudden surge in initial claims; many who initially filed for unemployment have yet to receive benefits, and are therefore not counted in the unemployment rate. A sharp rise in unemployment should be expected.
As of April 1st, 2020, 45 states have shut down all nonessential businesses. The remaining five states, North Dakota, South Dakota, Nebraska, Missouri, and Arkansas are expected to follow suit. With additional state closures looming, there will likely be more job losses on the horizon.
The Saudi Arabia and Russia price war coupled with the fallout of the coronavirus pandemic have plunged oil prices to a nearly 20-year low, down almost 60% since the start of the year. However, hopes of an end to the price war led to a sharp rise in oil prices at the end of the week.
The strongest driver of the U.S. economy, the consumer, saw its confidence fall to the lowest level since 2016. Consumer confidence is closely watched, as it is a leading indicator for growth. While it is not surprising to see sentiment plunge, given the extreme volatility in the financial markets and uncertainty surrounding jobs and the economy, the swift downturn is concerning.
Mortgage lenders are preparing for the biggest wave of delinquencies since the Great Financial Crisis. While lenders are working with borrowers to defer payments, and many states are instituting eviction moratoriums and postponing landlord-tenant disputes, these solutions only address the immediate need. Delinquencies will likely rise in the months ahead.
The term, “fallen angels,” refers to companies that drop from investment-grade to the high-yield sector. Corporate bond investors are bracing for a slew of rating downgrades in the coming months, as the coronavirus outbreak and oil-price shock have negatively impacted many industries. This is concerning given the large weighting of BBB-rated bonds in the Bloomberg Barclays U.S. Aggregate Bond Index.
Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Blend S&P 500 Index, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: DJ US Select REIT, Small Cap: Russell 2000
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Note that this article was published on April 6, 2020. Data represented is as of the publication date.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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