DJIA RECORDS BEST WEEKLY GAIN SINCE 1938, BUT MARKETS STILL FIRMLY IN THE PAWS OF THE BEARS AS RECORD STIMULUS BILL PASSES

Weekly Market Update — March 30, 2020

Return of the Bull

  • U.S. markets reversed the recent weekly declines and jumped significantly as value–investors scooped up shares at discounted levels and Congress put the finishing touches on a stimulus package topping out around $6 trillion
  • The mega–cap DJIA climbed a remarkable 12.8% on the week, its best since 1938, followed by the 11.6% gain in the small–cap Russell 2000 and the 10.3% gain in the broad, large–cap S&P 500
  • The tech–laden NASDAQ, which has most often led such rallies, brought up the rear with a gain of 9.1%
  • International, large–cap developed markets, as measured by the MSCI EAFE Index, rose 12% on the week
  • There was a time during the week where it appeared that the markets would claw their way out of the bear market, but increased volatility and Friday’s down day kept the markets still firmly stuck in the paws of the bears
  • Volatility, as measured by the CBOE Volatility Index, ended the week almost 7% higher and came to rest at just over 65
  • Every one of the S&P 500 sectors was higher and 7 of the 11 jumped more than 10%
  • The heavily–beaten down Energy sector led the way with a gain of 21.7%, outpacing Industrials, the next best sector, which returned 14.6%
  • As expected, initial jobless claims for the previous week skyrocketed to almost 3.3 million, the highest level ever recorded in history
  • The 2-year Treasury yield declined to 0.23% and the 10–year Treasury yield declined to 0.69%
  • The U.S. Dollar Index declined 4.4%
  • WTI crude dropped again this week as it has for the past five weeks, shedding almost 9% to $21.65/barrel

Weekly Market Performance

Close Week YTD
DJIA 21,637 12.8% -24.2%
S&P 500 2,541 10.3% -21.3%
NASDAQ 7,502 9.1% -16.4%
Russell 2000 1,132 11.6% -32.1%
MSCI EAFE 1,562 12.0% -23.3%
*Bond Index 2,284.40 2.66% 2.67%
10-Year Treasury Yield 0.69% -0.3% -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 Endure Another Volatile Week

Stocks moved north healthily this week as the DJIA hovered around the 20,000–point fulcrum and ultimately ended the week over 21,000. Most of the market news dealt with just how big the government’s actions and stimulus would be and by week’s end, the answer was known: $6 trillion.

BEAR

On Tuesday, the DJIA surged to its best day since 1933 as the other U.S. indices jumped about 10% each on the day too.

Despite the DJIA recording its best weekly gain since 1938, the markets are still firmly in the paws of the bears. Since their peaks, the DJIA is off more than 26% from its record high, the S&P 500 is off 25% from its high on February 19th and NASDAQ is off over 23% from its high.

The Energy sector, which has taken a beating for a very long time, jumped 21.7% on the week, despite the price of oil dropping again on the week. The range of performance among the 11 S&P 500 sectors was significant, however, as the worst performer on the week – the Communications Services sector – returned less than 5%.

Airline shares trended back upwards, notably Boeing, as investors welcomed the requested $60 billion bailout.

Stimulus, Stimulus, Stimulus

Investors were worried that the unprecedented government stimulus package would be delayed by partisan politics, especially since it did not advance early in the week and the two sides were sniping back and forth.

Finally late on Tuesday, all sides agreed to a huge $2 trillion package that includes direct payments to families, including $1,200 per adult and $500 per child, support for small businesses and expanded unemployment benefits. The Senate passed the stimulus package by a unanimous vote and it passed the House of Representatives on Friday by a voice vote. President Trump signed the bill late Friday and said this during the Oval Office signing:

The FED

“I want to thank Democrats and Republicans for coming together and putting America first.”

Fed Keeps Working

On the heels of unprecedented rate cuts, the Federal Reserve continues to support its quantitative easing program, this time suggesting that there was no limit on its purchases of Treasuries and agency mortgage–backed securities as well as purchasing investment-grade corporate bonds.

The Fed also announced it would help maintain the flow of credit to municipalities around the country and establish a lending program for small businesses.

CLICK HERE TO SCHEDULE YOUR COMPLIMENTARY CONSULTATION!

Record Jobless Claims

The Department of Labor reported for the week ending March 21st that the initial jobless claims came in at 3,283,000, an increase of 3,001,000 from the previous week’s level. This is the highest level of initial claims in history.

JOBLESS

For comparison purposes, the previous high was 695,000 in October of 1982. The record high numbers are all due to the coronavirus, as the DOL suggested in its opening statement to its Release:

“During the week ending March 21, the increase in initial claims are due to the impacts of the COVID-19 virus. Nearly every state providing comments cited the COVID–19 virus impacts. States continued to cite services industries broadly, particularly accommodation and food services. Additional industries heavily cited for the increases included the health care and social assistance, arts, entertainment and recreation, transportation and warehousing, and manufacturing industries.”

Consumer Sentiment is Way Down (No Surprise)

According to the University of Michigan survey, consumer sentiment dropped precipitously. From their Release:

“Consumer sentiment dropped 11.9 Index-points in March, the fourth largest one-month decline in nearly a half century. The steepest monthly decline was barely larger at -12.7 Index-points in response to the deepening recession in October 2008, and there were two declines of 12.2 points in response to the 1980 recession and Hurricane Katrina in September 2005.”

CONSUMER NOT

More from the Release:

“The 1980 and 2008 collapses in consumer confidence sparked long and deep recessions. The Katrina decline was reversed within three months, and some observers compared that “V” shaped economic episode to the expected impact of the coronavirus.

What didn’t show a “V” shape response was the recovery of New Orleans, a closer comparison to today’s national economy. A more comparable prior decline occurred in August 1990, when the Sentiment Index fell by 11.8 points due to the invasion of Kuwait, and subsequently recorded an all-time record gain of 17.3 points in March 1991. Those two outsized changes in the Sentiment Index defined the start and end of the 1990-91 recession. Just as in the 1990-91 episode, the Sentiment Index can be expected to decline in the months ahead.”

Sources

sca.isr.umich.edudol.govfederalreserve.govstandardandpoors.comnyse.commsci.comnasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

Leave a Comment