This Week's Market Moves | April 20, 2020
Plans to re-open the U.S. economy overshadowed the terrible economic news that came out this week. Here are some other highlights for the week:
Plans to re-open the U.S. economy and the encouraging news of an effective drug treatment for COVID-19 lifted stock prices last week. As of the close of business on April 17th, the S&P 500 was up 28.5% from the March 23rd low, and down 15.2% from its all-time high on February 19th.
The Fed’s support for corporate bonds, particularly fallen angels, has set the stage for a strong rebound in the credit markets. Since the Fed’s historic announcement last week, high-yield bond spreads tightened over 100 basis points to 764 over Treasuries. Spreads peaked at nearly 1,100 basis points on March 23rd, their widest level since the global financial crisis.
The market’s focus on price-earnings remains a key valuation measure for stocks. With the latest rebound in the equity markets, the S&P 500 is trading over 18 times expected earnings next year, up significantly from its March 23rd low of 12.9x and down slightly below the highs reach earlier this year. However, the reliability of the earnings estimates may be questionable in this unprecedented environment.
5.2 million more Americans filed for unemployment benefits this week. This brings the four-week total to just over 22 million Americans who are currently out of work since the coronavirus outbreak began. The staggering amount of job losses over the last four weeks has completely wiped out all the jobs gained since the Great Recession.
The economic impact of the coronavirus outbreak is getting real. While the federal government may be spending trillions of dollars to support the economy through the nationwide shutdown, business bankruptcy filings and those considering bankruptcy are starting to increase. With unemployment on its way to 10% or higher, personal bankruptcies are likely to follow a similar trend in the months ahead.
With the government spending trillions of dollars to address the health crisis, the nation’s federal debt and deficit is set to rise materially. The country’s total federal debt and budget deficit as a percent of gross domestic product (GDP) are now on track to surpass the records set after World War II.
OPEC’s deal to cut oil production by nearly 10 million barrels per day beginning next month has failed to lift oil prices. The production cuts have not been enough to offset the collapse in global demand amid all the mandated lockdowns. Oil prices fell below $19 a barrel this week, the lowest level since 2002.
Millions of American households are facing financial hardships due to the nationwide shutdown of the economy. Moody’s Analytics is reporting that as many as 30% of Americans with home loans could default if the economy remains closed through the summer. The Mortgage Bankers Association is also reporting a surge in forbearance requests (i.e., a temporary pause or reduction in mortgage payments).
U.S. retail sales recorded the largest monthly decline since 1992, falling 8.7% in March, as social restrictions and massive job losses significantly dampened spending. The one bright spot in the report was a sharp uptick in household essentials, namely food and beverages. However, consumers’ panic buying of essential items was not enough to offset sharp declines in clothing, auto and restaurant sales.
With signs that the coronavirus outbreak is plateauing, plans for a phased reopening of the U.S. economy are currently underway. While many are hopeful for a return to normalcy, it remains to be seen how quickly governors will relax the restrictions in place and what new guidelines will be implemented by states and employers to prevent a possible new outbreak.
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
Note that this article was published on April 20, 2020. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions.
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.
Investment products available through Cammack LaRhette Brokerage, Inc.
Investment advisory services available through Cammack LaRhette Advisors, LLC.
Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291