This Week's Market Moves | April 13, 2020

The markets ended the shortened holiday week with a better tone. Positive developments on the coronavirus and some new Federal Reserve (Fed) actions improved market sentiment and led to the largest weekly gain in the S&P 500 index since 1974. Here are some other highlights for the week:

The Fed took additional steps this week to provide up to $2.3 trillion in loans to support the economy. The funding will assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic. The Fed also expanded its purchases of corporate, some high-yield, and securitized bonds.

6.6 million Americans filed for unemployment benefits this week, bringing the total to 16.8 million people out of work in the last three weeks. The official statistics have not caught up with the spike in jobless claims, and the unemployment rate is likely to soar above 10%, or even higher, in the near future.

Many large restaurant groups, travel-related companies, retailers and energy-related firms have announced dividend suspensions, and several large banks are terminating their stock buybacks, in response to the coronavirus-induced economic slowdown. Further actions are likely in the weeks ahead.

U.S. stocks climbed back into bullish territory last week on signs of encouraging coronavirus developments. While there is still plenty of disappointing news with which the markets will have to contend in the weeks and months ahead, the market remains optimistic that the Fed’s flood of liquidity and the government’s massive economic relief packages will help cushion the downturn.

U.S. Government bonds ended the shortened holiday work week modestly higher. The 10-year Treasury yield rose 11 basis points to 0.73%, as risk-on sentiment in the equity markets and increased supply weighed on bond prices (bond prices and yields move in opposite directions). Riskier fixed income sectors (i.e., investment-grade and high-yield bonds) recouped some of their prior losses after the Fed rolled out its new loan program.

First quarter earnings season kicks off this week, with Johnson & Johnson, JPMorgan and Wells Fargo among the first companies to report. Consensus S&P 500 forward revenues and earnings have steadily declined as the coronavirus outbreak shut down most of the U.S. economy. Profit margins are also expected to fall in 2020, with some recovery in 2021. While the near-term outlook is bleak, stock prices are based on what the world will look like in the future and investors are betting on a speedy rebound.

The VIX index, a widely used measure of investor sentiment, has continued to fall from the sharp spike in mid-March. While still elevated, the Fed’s liquidity injections and government’s massive economic relief packages seem to be calming market fears.

The dispersion of Wall Street views on the outlook for stocks is particularly wide, as the extent and length of the U.S. economy’s growth shortfall remains highly uncertain. Most economists believe the worst may already be behind us as the government’s extreme stimulus measures are likely to offset the sharp decline in economic activity. However, a small minority of others are far less sanguine about the economic outlook.

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 13, 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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