FA Market Update - 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.

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.

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.

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 31^st 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.

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.