FA Market Update - May 1, 2020

Posted by Miller Bentley, Financial Advisor on May 1, 2020

Price growth within the equity markets continues to rally after the February plummet from coronavirus (COVID-19), but why this rebound is happening has most experts searching for answers – especially this past week when a majority of reporting companies revealed underwhelming first quarter earnings.

This upswing is based on a few different factors, but the one consistent attribute of the markets recently is volatility.

During March 2020 the S&P 500 index had four of the best one-day percent gains since 1950, while it also experienced three of the worst one-day percent declines. For perspective, September 2008 through Mach 2009 holds five of the worst day change records and eight of the best.

 


 

September 29, 2008

-8.8% (#6)

 

March 9, 2020

-7.6% (#9)

September 30, 2008

+5.7% (#14)

 

March 12, 2020

-9.5% (#3)

October 9, 2008

-7.6% (#8)

 

March 13, 2020

+9.3% (#4)

October 13, 2008

+11.6% (#1)

 

March 16, 2020

-12% (#2)

October 15, 2008

-9% (#4)

 

March 17, 2020

+6% (#12)

October 28, 2008

+10.8% (#2)

 

March 24, 2020

+9.4% (#3)

November 13, 2008

+6.9% (#7)

 

March 26, 2020

+6.2% (#11)

November 20, 2008

-6.7% (#13)

 

 

November 21, 2008

+6.3% (#10)

 

 

November 24, 2008

+6.5% (#8)

 

 

December 1, 2008

-8.9% (#5)

 

 

March 10, 2009

+6.4% (#9)

 

 

March 23, 2009

+7.1% (#6)

 

 

 


 

Nonetheless, the trend continued this week to end the month of April on a positive note, with the S&P 500 index opening on Monday at 2,854.65 and not looking back as the index closed at 2,912.43 on Thursday.

 

Compared to the eye-popping oil price volatility last week, this week saw oil prices remain stable throughout continued talks of storage and demand issues.

 

The broad market has also revealed how forward-looking investors can be as the energy, financials, and materials sectors 5-day performance increased +15.63%, +8.75% and +9.6%, respectively. Those sectors advanced while for the first time in three quarters the US GDP sank -4.6% in Q1 2020.

Furthermore, many companies reporting first quarter earnings this past week either missed expectations or pulled guidance altogether, showing signs of distress from the coronavirus. Mind you, the economy did not enter into a shutdown mode until March, signaling that second quarter GDP and earnings should be worse than Q1. Couple those facts with the weekly jobless claims report capturing another 3.8 million Americans, then it is easier to understand the Thursday pullback in the equity markets.

 

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Optimism this week comes from the Federal Reserve releasing another statement with regards to its full support of minimizing the economic impact from the coronavirus by using any tools necessary. Fed Chairman Jerome Powell had a concerning outlook for the US economy, but insisted that the central bank is doing everything in their power to keep the country running.

Another positive point is that the economic downturn is mainly due to the government’s response to stop the spread of this deadly disease – it had to be done.

Now, making businesses profitable again relies on the government and state and local officials to adapt more health-conscious guidelines within their places of work. 

 

A slow, strategic re-opening of the country should lead the way out of a recession, but it could be a rocky road.

 

It is important to look back at the trend of some key figures as things have progressed since the onset of the pandemic.

First of all, the S&P 500 index ended April at 2,912.43, or +16.5% for the entire month that began at 2,498.08. Yet going back just one month earlier to March shows a tailspin from 2,974.28 to a close on March 31st of 2,584.59, or -13.1%. And February opened trading at 3,235.66, but ended the month -8.7% to 2,954.22.

The positive stock price movements in April further emphasize the ability for equity markets to see through the dismal economic outlay.

The figures below show how new jobless claims have started to recede, but the total number of jobless claims reaching 30 million in 6 weeks is unprecedented. And even more important are the next two columns, showing the trend of new coronavirus cases and the number of Americans who have succumb to the virus.

The number of cases only rose by 20% this week, continuing the downward trend from 29% & 40% in weeks prior. The number of deaths caused by the coronavirus has also retreated, but is nonetheless tragic at 60,303.

 

As of…

New US Jobless Claims

New COVID-19 Cases in US

New COVID-19 Deaths in US

February 27th 2020

219,000

65

2

March 5th 2020

216,000

162

12

March 12th 2020

211,000

1,617

30

March 19th 2020

281,000

12,443

168

March 26th 2020

3.28 million

70,821

1,076

April 2nd 2020

6.64 million

156,798

4,644

April 9th 2020

6.6 million

220,214

10,603

April 16th 2020

5.24 million

204,337

17,770

April 23rd 2020

4.42 million

196,325

14,198

April 29th 2020

3.83 million

172,023

11,800

Total

30.9 million

1,034,805

60,303

 

Local authorities are opening restaurants and various businesses in limited capacity over the next few weeks, and only time will tell if the small steps taken to re-open the economy will lead to another spike in cases and subsequent deaths from the coronavirus.

Experts are predicting treatment for the virus by the end of the year and a vaccine by the summer 2021, so adaptation to a new normal of stricter health and safety protocol is pivotal in order to keep the virus at bay and the economy churning.

If we are not willing or able to shift our lives for the sake of health, then we will sacrifice just that.

 


 

For anything additional, please contact any one of our financial advisors or visit our website. Stay informed about future developments by frequently visiting our COVID-19 Financial Updates page.

 

Topics: Financial Planning, coronavirus, investment, COVID-19, market

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