Stimulus 3.5 and States Opening Up

DOMESTIC LARGE–CAP INDICES LOSE GROUND AS OIL PLUNGES INTO NEGATIVE TERRITORY AND WASHINGTON PASSES STIMULUS PACKAGE 3.5

Weekly Market Update — April 27, 2020

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  • Markets were mostly down this week, as the large-cap U.S. market indices snapped their two–week winning streak and ended lower
  • In a reversal of past weeks, the small-cap Russell 2000 Index led the way as it scratched out a gain of 0.3%
  • Besides the obvious COVID–19 concerns, including when states would ease their stay–at–home orders, the week was dominated by the negative price of oil, an active corporate earnings week and another stimulus package from the federal government
  • The DJIA dropped 1.9% on the week, followed closely behind by the S&P 500\’s 1.3% loss and NASDAQ\’s small 0.2% decline
  • On Monday, the price of a barrel of WTI crude to be delivered in May settled at –$37.60 per barrel, the first time in history that it has closed in negative territory
  • As the week wore on, WTI crude futures remained volatile, with the June WTI contract ultimately ending the week north of $17/barrel
  • Despite the extreme volatility in oil, the Energy sector was the only S&P 500 sector to see gains, as it jumped 1.7% on the week
  • The Real Estate (-4.4%) and Utilities (-3.8%) sectors fared the worst on the week
  • Weekly initial claims for the week ending April 18 decreased by 810,000 to 4.4 million
  • Congress passed and President Trump signed stimulus bill #4, called Phase 3.5, which adds another $484 billion for small businesses, hospitals, and COVID–19 testing
  • The 2–year Treasury yield was unchanged at 0.20% and the 10-year yield declined to 0.59%
  • The U.S. Dollar Index advanced 0.5% to 100.25

Weekly Market Performance

Close Week YTD
DJIA 23,775 -1.9% -16.7%
S&P 500 2,837 -1.3% -12.2%
NASDAQ 8,635 -0.2% -3.8%
Russell 2000 1,233 0.3% -26.1%
MSCI EAFE 1,589 -2.0% -22.01%
*Bond Index 2,335.06 0.20% 4.95%
10-Year Treasury Yield 0.59% -0.1% -1.3%

*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.

U.S. Stock Markets Held Back by Negative Oil

Relative to the performance over the past eight weeks, the changes in the major U.S. indices were surprisingly modest. The large-cap U.S. indices turned in negative numbers, led by the very–large-cap DJIA’s –1.9% return, whereas the more diversified, but still large-cap S&P 500 lost 1.3%. The technology-laden NASDAQ turned in a modest 0.3% decline and the smaller–cap Russell 2000 Index outdid its larger-cap counterparts and turned in a tiny gain of 0.2%.

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Oil was the topic of the week and on Monday, the price of a barrel of WTI crude to be delivered in May settled at –$37.60 per barrel, the first time in history that it has closed in negative territory. That meant that buyers were getting paid to take and store each barrel of oil.

For perspective, the price of Brent crude, the global price benchmark for two–thirds of the world’s crude oil supplies, opened 2020 at $68/barrel. Since then, the price has crashed multiple times, including a 25% drop in early March, ending the week at just over $21/barrel.

The price of oil has collapsed amidst an oversupply and significantly reduced demand due to the global shutdown from COVID–19. And while low oil prices can often be helpful for stock prices, investors are worried about declining sentiment just as much.

Shockingly, despite oil futures going negative this week, the trend reversed itself and pushed the Energy sector to end the week as the only S&P 500 sector painted green.

Stimulus 3.5 and States Opening Up

Wall Street was hopeful that there would be another stimulus package and on Thursday, Congress overwhelmingly passed a $484 billion stimulus bill to replenish the money earmarked for small businesses and provide money for further testing. President Trump signed the bill on Friday.

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In addition to anticipation of another stimulus package, there was guarded hope – and plenty of worries too – that the states’ stay–at–home–orders could be gradually lifted. The state of Georgia is leading the other states as it begins to open businesses on Friday and the announcement was met with trepidation and disagreement around the county, including when President Trump suggested that Georgia might be opening too early.

A Busy Earnings Week

To date, about one–fourth of companies in the S&P 500 have reported actual results for the first quarter of 2020. According to research firm FactSet:

  • In aggregate, companies are reporting earnings that are 5.1% below the estimates, which is also below the five–year average
  • In aggregate, companies are reporting sales that are 0.5% above estimates, which is below the five–year average

Existing Home Sales

On Tuesday, the National Association of Realtors reported that for the month of March, Existing Home Sales dropped 8.5% from February as each of the four regions saw negative numbers, with the West reporting the largest decline. But glass–half–full investors saw some positive nuggets from the NAR too, including that:

  • The median existing-home price for all housing types in March was $280,600, up 8.0% from March 2019 ($259,700)
  • March’s national price increase marks 97 straight months of year–over–year gains
  • Properties remained on the market for an average of 29 days in March, seasonally down from 36 days in February, and down from 36 days in March 2019
  • More than half the homes sold in March (52%) were on the market for less than a month

Jobless Data Leaves Wall Street Hopeful Too

On Thursday, the U.S. Labor Department reported that another 4.4 million filed jobless claims by the end of the previous week, pushing the five-week total to over 26 million.

From the Department of Labor\’s Release:

  • In the week ending April 18, the advance figure for seasonally adjusted initial claims was 4,427,000, a decrease of 810,000 from the previous week\’s revised level
  • The advance seasonally adjusted insured unemployment rate was 11.0 percent for the week ending April 11, an increase of 2.8 percentage points from the previous week\’s unrevised rate
  • This marks the highest level of the seasonally adjusted insured unemployment rate in the history of the seasonally adjusted series

Despite the fact that 26 million Americans are out of work, some remain hopeful that the trend is slowing, as this marks the third consecutive week of declines.

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Sources

dol.govNymexnar.realtorfactset.comstandardandpoors.comnyse.commsci.comnasdaq.comdowjones.commorningstar.comfidelity.combloomberg.com

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