Weekly Market Commentary
Hello Friends,
I hope this message finds you safe, healthy and in good spirits. I thought I would share the latest Market News that my team received from Tom Siomades , our Chief Investment Officer at AE Wealth Management .
Please take a look at the information provided and let me know if you have any questions. Our team is here to help.
YESTERDAY'S NEWS
News has become a bit more positive today, as the infection/death rate has shown signs of slowing in the U.S. The virus is also beginning to slow dramatically in Europe, as the spread of coronavirus appears to have flattened.
The Russians and Saudis are set to return to talks Thursday. President Donald Trump is pushing for each country to cut production by 15 million barrels per day.
CURRENT MARKET DRIVERS
Brighter projections about the spread of the virus drove markets higher yesterday, with all markets ending up around 7-8%.
Oil slipped yesterday after an amazing two-day run. The dip comes as inventories have ballooned.
Volatility keeps dropping. Guess what? When volatility drops, the market moves upward.
THINGS TO LOOK FOR
This week is stacking up as a pivotal one for the virus in our country. It truly seems like this week will be the hardest to take given the dark news coverage, and it will be difficult for people to stay calm and focused.
Markets are looking ahead. By the time the last person has emerged from the forest, a great opportunity will have been missed.
The VIX was down again yesterday. (hitting the mid-40s level). Also, the 10-year Treasury was closing in on 70 basis points (.70), up from the low 60s last week. This is all good news.
LAST WEEK IN REVIEW: March 29 - April 4
When Bad News is not “New” News
Markets were moderately lower last week, as news continued to be negative and focused on the fallout from the coronavirus pandemic. We received horrific unemployment claim numbers with new claims up nearly 10 million during the past two weeks, but when you shut down 95% of the economy and grind to a halt, the logical outcome is bad news. Markets are a forward-looking discounting mechanism, and that’s why we didn’t see the drastic sell-off we saw in the past month given the level of bad news. Instead, much of the negative news we’re seeing now has already been incorporated into current market levels.
Gimme Shelter!
First, President Donald Trump expressed that we might begin getting back to “normal” by Easter, April 12. That looked optimistic when he said it a few weeks ago, and now it’s positively not happening. The administration issued new guidance for shelter in place advisories to continue until at least April 30, with a more realistic date of getting back to normal by June 1.
Infection levels continue to rise as we wait for the curve to crest and flatten, and until there is a sign of that happening, markets will remain choppy and susceptible to the daily news feed even if the headlines aren’t new or unexpected. That said, I do not expect markets to move materially from these levels unless new information is revealed that hasn’t been incorporated into current valuations.
We heard sobering projections last week that the virus may claim between 100,000 and 240,000 American lives. We also heard that the government was ordering 100,000 body bags and the administration was recommending that all people wear some sort of facial covering, especially in areas with the highest infection rates.
The first quarter of 2020 was the worst quarter for markets since 2008. The March jobs figure reported on Friday showed a loss of over 700,000 jobs, the first time that number has been negative in more than 10 years. Unemployment also rose from 3.5% to 4.4%. Those numbers don’t report the full story, as the March jobs number only accounts through mid-March.
As we know, we had another 10 million people lose their jobs in the last half of March, so the actual unemployment rate is significantly higher than the official number. Are we closer to 10% in unemployment at this point? Maybe. The market knows that, so when the April unemployment number is announced in early May, the bad news will already be old news as far as the markets are concerned.
Bad News for Globalism
We experienced a wave of anti-globalism before all this started, and the global pandemic has further exposed flaws in the system. I know in a perfect world everyone would get along with everyone else just like they do on Star Trek, with everyone being a citizen of Earth and all. Yet there’s nothing like a good ol’ global emergency to lay bare the problems of global supply chains and global competition.
Europe, with its Schengen Agreement that allows for borderless travel within the European Union, has fallen on its face as country after country within the EU has closed its borders to slow infections. Elsewhere, countries all over the world have issued travel bans, and there’s been a shocking lack of information, accompanied by obfuscation, by certain countries (China) and organizations (WHO). There’s also been hoarding of vital materials and reliance upon other countries to produce critical medicines and materials. President Trump even upbraided 3M for selling protective masks to foreign countries and not to the U.S.
Make no mistake: When faced with an emergency or catastrophe, every government’s duty is to protect and take care of its citizens. That’s what’s happening. The pros and cons of globalism will be vigorously debated going forward, but I feel the debate will take a more skeptical tone rather than a rose-colored-glasses one.
Some Good News
President Trump reported that the Russians and Saudis would resume their talks on oil. Last week they discussed a reduction of 10 million barrels per day, leading to oil’s biggest one-day rise in history of 25%. The end of this oil price war would go a long way toward calming the markets.
It appears the curve is flattening in Italy, which is a good sign and bodes well for us. The president signed the CARES Act -- the $2.2 trillion relief package -- into law, which will attempt to mitigate the damage to the economy resulting from this awful shutdown. There is also talk of a Phase 4 stimulus package to boost our recovery when we turn the corner on the virus. As I keep saying, short of a meteor hitting the planet (like the one that wiped out the dinosaurs) or another Ice Age, what else can be thrown at us? The news will improve in the weeks to come and we WILL begin to return to normal.
COMING THIS WEEK
New unemployment benefits claims will be horrible again this week. It shouldn’t be a tremendous surprise; remember what I said about bad news versus new news.
Q1 2020 is in the books and data will begin to start filtering in. I am not sure just how useful the information will be given the swiftly moving events in the markets and the economy. Take the reading with a grain of salt, as they are not a reflection of the current state of things.
Last week I said, “We need to see the 10-year note stabilize and the VIX has to come down.” Well, the 10-year has been hovering around .60, which I would like to see higher, but the VIX ended last week in the low 50s. It’s down from the mid-80s in the middle of March and has continued to fall steadily. It’s an encouraging sign.
President Trump has told us that the next few weeks will be rough, and it’s true we will see a lot of bad news and bad behavior. However, I’m optimistic by nature, and I think the vast majority of Americans are as well -- it’s what makes our country great. We are resilient and resourceful, and that is why we need to stay the course and remain patient, knowing that this will all pass and we will rebuild.
Please do not give in to temptation and succumb to the negative news cycle we are exposed to 24/7; instead, stay positive. There will be time to reflect on everything that’s happened later, including who did or did not do this or that and what could have been done better. Right now, we need to stay informed, united and focused, which isn’t a bad attitude to take with your investments as well
For any questions on the material presented, please reach out by calling (909) 330-0074 or schedule a phone call or zoom meeting online .
Have a good week and stay healthy.
Sincerely yours,
Michael R. Sears
President & CEO
