Economic Update 5-04-2020

• Data for the week included lackluster results for Q1 economic growth, personal income and spending, manufacturing, and jobless claims. These were all as expected due to the rapid business shutdowns since March.
• U.S. and foreign equity markets were mixed last week as sentiment wavered back and forth surrounding virus and economic news. Bonds were little changed on net, with central bank policy consistently accommodative. Commodities rose as crude oil prices rebounded back from dislocations the prior week.

U.S. stocks were mixed last week on net. Markets gained strongly on Wed. with widespread trials for a Covid therapy (Remdesivir, developed by Gilead) showing more concrete effectiveness, to back up anecdotal claims from recent weeks in the field. However, by Friday, negative economic and earnings reports again weighed again on markets. Are-escalation of tensions with China, including a possible resumption of tariffs and other punitive measures, were alluded to by the administration in retaliation for lack of early information sharing about Covid. A groundswell of resentment toward China has taken hold in both political parties, as well as in the corporate realm, so is an important factor to watch in coming months.

By sector, energy gained over 3% with a rebound in oil prices—with production cuts helping supply, and reports of some repair in global demand—followed by materials and communications. Defensive stocks in utilities, healthcare, and consumer staples lagged with the only losses for the week. A variety of firms, including those holding up seemingly better in high tech, have offered downbeat stories due to Covid impacts, and have pledged to not provide any 2020 earnings guidance due to the lack of clarity available. Interestingly, under some pressure from the public and regulators about business practices, pledged to spend all quarterly profits on Covid efforts.

Foreign stocks were also mixed, with Europe gaining over two percent in local terms, followed by minimal gains in Japan. As most other regions, sentiment in Europe has been driven by increased pressure to reopen several economies, in addition to ECB plans for additional bond market purchases and business liquidity provisions. Emerging markets gained due to strength from commodity exporters.

U.S. bonds lost ground slightly, as interest rates ticked higher across the 10-year and 30-year parts of the yield curve. Investment-grade credit outperformed government slightly, while high yield earned positive returns outright for the week. Foreign bonds gained in both developed and emerging markets, as the U.S. dollar fell by over a percent last week.

Commodities were mixed to higher as a sharp rebound in energy offset declines in metals. In percentage terms, the price change of West Texas crude oil rose into the double-digits, from under $17 to $20/barrel, back to somewhat ‘normal’ trading following the unique futures expiration issues last week when oil fell into negative territory. Despite production cuts, supply remains an issue, however. This has distorted the price of West Texas crude (which is stored at the delivery point in Cushing, OK) relative to the Brent crude contract to which most European oil is pegged—which has fluctuated less wildly.

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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