Weekly Market Commentary
THE WEEK IN REVIEW: APRIL 12 - APRIL 18
Courtesy of Tom Siomades, CFA®
Chief Financial Officer at AE Wealth Management
THE WEEK IN REVIEW: April 12 - April 18
We’re getting better, but we still have a long way to go.
We finally had an agreement on oil production from OPEC. Unemployment continued to climb, with over 22 million people applying for benefits in the past four weeks. President Donald Trump issued guidelines for states to begin reopening. Coronavirus infections began to level off, and the infection curve appears to show signs of “flattening.” The government began sending money to individuals, and the small-business support program ran out of money! Governors started discussing coordinated regional plans to reopen as some states experienced civil disobedience. Finally, markets started paying attention to data, as earnings, unemployment and China’s economic contraction all showed how ugly things can get.
News is improving on the virus front.
New York Governor Andrew Cuomo said the worst is over, as the infection rates began to slow even as the death toll continued to climb. Gilead, the pharmaceutical company, said it had made some big strides in developing a vaccine, while President Trump laid out a three-step plan for states to use as they contemplate reopening. The plan recognizes that certain parts of the country have had very different experiences with the pandemic (think New York City versus Wyoming). The reopening will be left largely in the hands of individual state governors, several of whom have banded together in regional efforts to reopen, including in the Northeast, Midwest and West Coast.
If the news on coronavirus infections is getting better, the news on reopening the economy is still murky. This isn’t going to be a clean situation, as the damage done to local economies is very different, and highly concentrated infected areas will be slower to reopen. Where does that leave us? The markets sold off in record fashion based on worst-case scenarios, and we have retraced over half the losses. Now as we move out of the immediate shock of the pandemic, how do we adapt to a new landscape as we try to reopen our economy? The market has decided that 2,800 on the S&P 500 and 24,000 on the Dow is the ledge we are going to rest on until we figure out Step 2, which will be getting the economy back as close as we can to what it was before the coronavirus hit.
The revenge of the data! Oil is cheap, but no one is using it.
China reported a decline of 6.8% in its GDP for the first quarter. New U.S. unemployment benefits claims were 5.25 million last week, raising total new claims over the past four weeks to 22 million and pushing the unemployment rate well over 10% nationally. Banks began to set aside billions for projected loan losses, and first-quarter earnings started coming out. None of this news was anywhere near as optimistic for the markets as the news of lower infection rates, vaccine developments and plans to reopen the economy. For now, optimism seems to be carrying the day, but last week showed that data can often compete with the optimism we have been seeing, keeping markets in the range described earlier.
Despite a landmark agreement among OPEC members to cut oil production to stabilize the price, oil inventories continue to climb and the price continues to fall. (WTI crude was $18.27/ppb as of close on Friday, April 17.) With major economies locked down, the simple fact is that people aren’t driving or flying as much as we regularly do, and therefore aren't using as much oil. The national average price for a gallon of regular gas is $1.79, and the TSA said there were 87,000 travelers so far this month versus 2.2 million during the same period last year!
How about the government? Or – kids will be kids!
I would love to report that this virus has galvanized our government and elected officials in a common cause – but that’s just not been the case. The Paycheck Protection Program (PPP) – which included $349 billion carved out of the $2.2 trillion relief package – ran out of money. The program has helped 1.6 million businesses so far. A request for an additional $250 billion seems to make sense, but politicians will be politicians and the effort has languished.
Governors continue to trade barbs with President Trump, which hasn’t helped things. We have seen instances of civil disobedience in several states, where perceptions are that lockdown enforcement has been draconian and arbitrary.
Congressional representatives are scattered around the country, sheltering in place. In my opinion, they should be in Washington (with proper protective measures), working to help citizens. Is it a national emergency or is it not, for crying out loud?
The checks are in the mail. As some people have started receiving direct payments of stimulus money, problems in distributing payments by the IRS have emerged.
All of this will likely keep markets in the current range until the status quo changes.
COMING THIS WEEK
The fight between hope and data will continue to play out. As we hear better news on the virus and the economy reopening and data begins to flow in, markets will have to parse the news to see if it was as bad as anticipated or not. If the data is “less bad,” markets will run with that.
Watch the new unemployment claims this week. If they drop from the weekly 5 million to 6 million new claims, it would bode well for the market.
Regional economic activity (Chicago and Kansas City), home sales (existing and new), and mortgage applications (new applications way off but refis way up) and consumer confidence will all be released this week. Remember the caution about data versus optimism.
Have a good week and stay healthy.
