MARKETS SKYROCKET AS CORONAVIRUS CASES SEEM CLOSE TO PEAKING, WASHINGTON PREPS STIMULUS #4 AND THE FED GETS MORE AGGRESSIVE Weekly Market Update — April 13, 2020

In a sharp departure from the past 6 weeks, U.S. stock markets leaped to their best weekly gains in over four decades, as the Federal Reserve announced more aggressive steps while consumer sentiment plummeted Unlike the past few weeks and most of last year, the smaller–cap Russell 2000 Index led the way and skyrocketed 18.5%, followed by the 12.7% gain in the narrowly-defined DJIA, the 12.1% gain in the broader S&P 500 and the 10.6% gain from the technology-infused NASDAQ The week started off with a bang as the DJIA closed up over 1,600 points on Monday, for a daily gain of 7.7%, which also happened to be the third-largest daily point gain for the DJIA Markets retreated Tuesday, but then steadily advanced on Wednesday and Thursday, leading many to suggest that this could be one of the shortest bear markets of all time All 11 S&P 500 sectors saw big jumps, with Real Estate and Materials both up over 20% on the week and Financials within a whisper of being up 20% too Much of the week\’s news seemed focused on expectations that the peak in coronavirus cases was imminent, in addition to more chatter about a fourth stimulus package from Washington Then to cap the week, the Federal Reserve announced a new $2.3 trillion emergency lending facility for businesses and municipalities

Weekly Market Performance

	Close	Week	YTD
DJIA	23,719	12.7%	-16.9%
S&P 500	2,790	12.1%	-13.6%
NASDAQ	8,154	10.6%	-9.1%
Russell 2000	1,247	18.5%	-25.3%
MSCI EAFE	1,581	6.3%	-22.4%
*Bond Index	2,300.47	0.03%	3.39%
10-Year Treasury Yield	0.73%	0.1%	-1.2%

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Stocks Skyrocket as Maybe the Coronavirus Bear is Over?

Domestic stocks rewarded investors with one of their best weeks in almost 45 years, as data suggests that global coronavirus cases may be cresting and the conversation has moved toward selectively lifting states’ stay–at–home orders, thereby beginning to open up businesses and restarting the economy.

In a reversal of past weeks, the smaller–cap names trounced their larger–cap counterparts, outpacing the large–caps by a lot – 18% for the small caps to 12% for the large caps. In similar fashion, the sectors that have fared the worst lately were this week\’s leaders, as the Real Estate, Financial and Energy sectors outpaced Consumer Staples. Remarkably, 7 of the 11 S&P 500 sectors were up by double–digits this week.

In technical terms, this week\’s gains brought the indices out of bear market territory, as the DJIA, S&P 500 and NASDAQ are all within 20% of their most recent highs this past February. Whether this was one of the shortest bear markets of all time, a bear–bounce or just a hiccup in the previous 11–year bull market depends on whether you are a glass half–full or half–empty investor.

U.S. markets were closed Friday in observation of the Good Friday holiday.

More Stimulus on the Way? Wall Street seemed hopeful that additional stimulus packages to combat the impact from COVID–19 were on the way. On Tuesday, Speaker Pelosi was openly discussing a fourth bill to include another $1 trillion in aid, including more payments to families, more unemployment insurance and additional loans for smaller businesses. President Trump confirmed that another stimulus package was being discussed when he said that a fourth bill was “absolutely under serious consideration,” and talks were underway in Washington. On Thursday, the Federal Reserve announced $2.3 trillion in loans to smaller businesses and municipalities. The Fed also announced it would buy ETFs and junk bonds as part of its Term Asset–Backed Securities Lending Facility and open a Main Street Lending Program to businesses employing up to 10,000 workers or with revenues of less than $2.5 billion.

10% of Workers Unemployed

As expected, this week brought another disastrous jobs report, with 6.6 million jobless claims filed. That brings the three–week total to about 16.8 million.

While the jobless number is staggering, unfortunately it is likely not a true number as it doesn\’t capture the full impact of the coronavirus just yet and many state systems are overwhelmed. To keep things in perspective, the 16.8 million jobs lost over the last 3 weeks totals more than 10% of the U.S. workforce.

According to the Department of Labor\’s Release:

• The 4–week moving average was 4,265,500, an increase of 1,598,750 from the previous week\’s revised average
• The previous week\’s average was revised up by 54,750 from 2,612,000 to 2,666,750

Interestingly, the DOL also reported that:

“The largest increases in initial claims for the week ending March 28 were in California (+871,992), New York (+286,596), Michigan (+176,329), Florida (+154,171), Georgia (+121,680), Texas (+120,759), and New Jersey (+90,438), while the largest decreases were in Nevada (-20,356), Rhode Island (-8,047), and Minnesota (-6,678).”

Weekly Retail Sales Indicate Less Hoarding

According to the Johnson Redbook Index, a weekly retail sales index released every Tuesday morning, this week\’s retail sales data supports the notion that consumer stockpiling is slowing down, as Redbook\’s same–store sales showed year–over–year growth of 5.3% last week, compared to 6.3% the prior week and 9.1% the week before that.

Of course it is important to realize that Redbook\’s data excludes categories that were severely impacted by the coronavirus, including restaurants and auto dealers, for example. But the data still supports the notion that stock piling seems to be slowing down.

Consumer Sentiment Plummets

Not surprisingly, U.S. consumer sentiment suffered a record decline in April. The University of Michigan’s consumer sentiment index plummeted 18.1 points to 71, its lowest since 2011. From Thursday\’s release:

“Consumer sentiment plunged 18.1 Index–points in early April, the largest monthly decline ever recorded. When combined with last month\’s decline, the two–month drop of 30.0 Index-points was 50% larger than the prior record. Of the two Index components, the Current Conditions Index plunged by 31.3 Index–points, nearly twice the prior record decline of 16.6 points set in October 2008. In contrast, the Expectations Index fell by 9.7 points, a substantial decline, but not nearly as steep as the record 16.5 point drop in December of 1980. This suggests that the free–fall in confidence would have been worse were it not for the expectation that the infection and death rates from covid–19 would soon peak and allow the economy to restart.”

Consumer Sentiment Plummets

Not surprisingly, U.S. consumer sentiment suffered a record decline in April. The University of Michigan’s consumer sentiment index plummeted 18.1 points to 71, its lowest since 2011. From Thursday\’s release:

“Consumer sentiment plunged 18.1 Index–points in early April, the largest monthly decline ever recorded. When combined with last month\’s decline, the two–month drop of 30.0 Index-points was 50% larger than the prior record. Of the two Index components, the Current Conditions Index plunged by 31.3 Index–points, nearly twice the prior record decline of 16.6 points set in October 2008. In contrast, the Expectations Index fell by 9.7 points, a substantial decline, but not nearly as steep as the record 16.5 point drop in December of 1980. This suggests that the free–fall in confidence would have been worse were it not for the expectation that the infection and death rates from covid–19 would soon peak and allow the economy to restart.”

Small Business Optimism Index

The National Federation of Independent Business sent out a press release with the headline: “Abrupt Turn in Small Business Optimism Ends 39-Month Historic Run.” The NFIB further stated that:

“The NFIB Small Business Optimism Index fell 8.1 points in March to 96.4, the largest monthly decline in the survey\’s history. Nine of the 10 Index components declined, which is evidence that economic disruptions are escalating on Main Street as small businesses struggle to keep their doors open.”

Sources

dol.gov; nfib.com; sca.isr.umich.edu; redbookresearch.com; federalreserve.gov; standardandpoors.com; factset.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; fidelity.com; bloomberg.com