Weekly Market Commentary
THE WEEK IN REVIEW: April 5 - April 11
Like a Shakespearean or Greek tragedy
Last week had a little bit of everything, with all sorts of twists and ironies worthy of a Shakespearean or Greek tragedy. The coronavirus continued to wreak havoc on our country and economy, the market had a furious rally, the Russians and Saudis ended their oil war, unemployment continued to climb, President Donald Trump called out the World Health Organization (WHO) and we finally have our matchup for the November election. Imagine what a whole extra trading day would have offered since the week was holiday-shortened due to markets being closed for the observance of Good Friday.
When bad news is good news
Remember last week when I said that “bad news” is not always “new” news? Well, this week, it seemed that the more bad news we got around the virus and economy, the more the market viewed these developments as the beginning of the end of these horrific events and their impact. When we saw the death rate climb and the rate of new infections slow, the markets took that as a sign that we were turning a corner. In response, they managed to deliver the best week for the S&P 500 since 1974 and just missed the best week for the Dow since 1938.
The logic is that deaths are perceived as rearward-looking; people who have had the disease are passing, so the markets discount those higher numbers. Rates of new infections, a forward-looking measure, are dropping, and fewer infections today mean fewer future deaths. Markets liked the more optimistic scenario. It would seem, at least for now, that the sell-off was a bit pessimistic and we have risen to new levels as we await more inputs.
View the logarithmic charts to see the bending of the curve.
The Fed gave details on its program to infuse an additional $2.3 trillion in liquidity in efforts to offset yet another horrific unemployment report showing another 6.6 million Americans filed for initial benefits. We’ve added 16 million newly unemployed Americans in less than a month. That number would put national unemployment close to 1 in 10 of our nation’s workers, so we zipped from 3.5% to 10% unemployment in just three weeks.
The Russians and Saudis appear to have ended their feud and have agreed to oil production cuts. An agreement should stabilize oil prices and take away another unknown that has been a thorn in the side of the market.
The market was optimistic that Congress would vote for additional funding to close the week, pumping another $250 billion in stimulus to small business, until partisan bickering stalled the proceedings. Congress could not agree on who should get what or how much should go where, which caused the market to come in a little on Thursday afternoon.
All of this happened in only four days!
Voters won’t “Feel the Bern”
After his Super Tuesday and subsequent pre-coronavirus lockdown primary disappointments, Bernie Sanders finally suspended his campaign last Wednesday. Make no mistake: There was not a hint of endorsement from Sanders for Joe Biden, who will now challenge President Trump in the November general election.
Instead, Sanders stated he would remain on the ballet of future primaries and try to amass more delegates in order to influence the Democratic platform at the convention. He further reiterated a long list of projects and programs he would like Biden to adopt, from universal health care, free college and student loan forgiveness to a more radical climate change agenda (Green New Deal), to name a few.
It’s almost as if Sanders is trying to make Biden’s task even harder. Weren’t these same ideas the reason Democrats rejected Bernie? Now with President Trump indulging in nearly two-hour-long televised coronavirus briefings on a daily basis, Biden must find a way to get people’s attention. The problem of unifying the party seems just as challenging as when there were over 20 candidates for the Democratic nomination a few months ago.
The markets were having a great week and took off when the Sanders announcement dropped. It seems markets didn’t like Bernie’s proposed policies and his constant attacks on the wealthy. Markets rallied when it became apparent the choice would be between President Trump and Biden.
Dr. Tedros’ most excellent adventure!
Last week, I wrote about the streak of anti-globalism and the rise of nationalism sweeping the world before the coronavirus hit us. This week, we saw that ire directed toward the WHO and its head, Dr. Tedros Adhanom Ghebreyesus. President Trump called out Dr. Tedros and the WHO for dragging their feet in calling the coronavirus a pandemic.
Some might call the president’s attack on the WHO a little premature given all the other more important stuff that’s going on right now, and I tend to agree. Now’s not the time to assign blame; now’s the time to take care of ourselves and focus on getting going again. I agree with President Trump’s criticism but not his timing. However, the president does things his own way.
I will say the WHO — which is tasked with monitoring the world’s health and coordinating with United Nations member states to ensure safety with respect to health-related issues – really let us down. Dr. Tedros met with Chinese leadership in January, and in the first week of February, he said there was no need for the world to take measures that “unnecessarily interfere with international travel and trade.”
Dr. Tedros didn’t call the coronavirus a pandemic until March 11, and by then, it had been in Italy and Iran for a month. Was he hoping the cow would return to the barn so he would only have to close the door once? He told people in mid-January that the virus could not be transmitted human to human, but the following week China locked down the city of Wuhan. I can see President Trump’s frustration with a leader and an organization that we give more money to than any other country. NO WAY!
COMING THIS WEEK
Easter is past, and we are still staying home. President Trump has told us that “the next few weeks will be rough.” Well, the first month is done, and it has been rough, but there has also been some promise. Things will continue to be tough and the markets are far from calm, but the herd seems to be less fearful. The volatility index (VIX) ended the holiday-shortened week just above 40, down from the mid-80s at the height of the sell-off. The other good news is that the 10-year Treasury has also moved into the 70-75 basis points (.70-.75) range, up from the mid-50s at the end of March. This shows that at least some folks are thinking of getting off the sidelines.
We will see if we get a fourth week of scary unemployment numbers on Thursday, and if the market shrugs them off for a fourth straight time.
Congress will need to act again on more stimulus. Last week’s fumbled attempt was not good for confidence.
Leading indicators – including housing starts and the Philly business outlook – will probably be dismal this week. The question once more will be whether or not the market has already discounted these poor readings.
Have a good week and stay healthy.
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