Economic Update 4-06-2020

• Economic data continued to reflect a slowdown in activity as the result of the coronavirus, although last month’s releases were mixed to some degree, based on when the results were measured. A toll can already be seen in ISM non-manufacturing and employment.
• U.S. and foreign equity markets fell back on continued uncertainty over economic impact from the coronavirus, and anticipation of a difficult few weeks ahead. U.S. bonds gained, upon government purchase support and a general investor avoidance of risk. Commodities gained as crude oil bounced sharply upon rumors of an OPEC production cut being discussed.

U.S. stocks fell, as optimism from the prior week’s Congressional stimulus package faded a bit. This change in tone was based on reports of the administration’s worst-case estimates of up to a quarter-million coronavirus fatalities, due to ramped up infection numbers in the NY area and CA. Seeing the magnitude of the 6 mil.-plus jobless claims being realized also appeared to weigh on sentiment. Small caps sharply underperformed large-caps, due to these companies’ lower cash buffers in many cases, more limited product lines, and domestic focus.

By sector, energy led the way for the first time in many weeks, gaining 5% upon a reversal upward in crude oil prices, followed by positive returns from consumer staples and health care. Financials and utilities lagged by the greatest degree, with returns of below -6%. Real estate also fared poorly, as prospects for a variety of sectors, including office and retail, continue to look bleak.

Foreign stocks performed largely in line with U.S. equities, following medical conditions and expectations for a global recession. Other than Europe outperforming Japan, with news of some coronavirus case deceleration, results were mixed to lower. Emerging markets fared with lower degrees of decline with reports of Chinese activity picking up, and double-digit returns in Russia, due to the strength of energy’s bounce back.

U.S. bonds fared decently for the week, as confidence from the backstop of Fed purchase activity and further ‘risk-off’ sentiment buoyed bond markets generally. Long-term treasuries fared best, although corporates, and especially floating rate bank loans, fared best and investors appeared interested in potential valuation opportunities in lower-rated debt. Foreign bonds were down slightly in local terms, but ended up weaker due to a strong dollar in both developed and emerging markets.

Commodities recovered by several percent last week, due solely to a comeback in the energy sector, while all other segments lost ground. The price of West Texas crude oil rose from a trough of $20 back to above $28/barrel over the course of the week—a dramatic shift—as rumors of a Saudi-Russian production cut agreement began to swirl.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                        

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

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