April 12, 2020, Weekend Market Thoughts by Matthew Somberg

Sunday, April 12, 2020

 

Dear Friend,

Happy Easter and Happy Passover.  We hope this email finds you and your family well.

We again send you our thoughts regarding the previous week in the markets as well as what to look forward to this coming week.

Last week

  • For the week, the Dow Jones Index gained 12.7% and is now down 16.9% since January 1st
  • The S&P 500 gained 12.1% on the week and is now down 13.6% since January 1st
  • The Nasdaq gained 10.6% for the week and is now down 9.1% since January 1st

The S&P 500 enjoyed its best week since 1974 with a 12% gain and is now up 25% since its low in March.  Similar results for the Dow and Nasdaq which are also up 28% and 23% respectively from their bottom low points in March.  Investors with exposure to stocks in their portfolio have likely seen an uptick in balance since the March lows.

Why did the markets do so well?  I thought we were preparing for a very difficult week last week?

As mentioned last week, the correlation between Covid-19 spread and stock market performance seems to have broken.  Investors appear to be celebrating a general flattening of the curve as well as contemplating how their portfolio should be positioned when social distancing ends.

  • On Monday stocks climbed higher as data showed that Covid-19 cases may be flattening.
  • On Tuesday the rally continued for most of the day until an afternoon sell off that kept the markets flat for the day.
  • On Wednesday the markets soared again on the news of Bernie Sanders withdrawing from the race for Democratic nominee.  Sanders’ economic platform was essentially anti-business and investors are more comfortable with Joe Biden, whose economic policies are more moderate than Sanders.
  • On Thursday the markets shrugged off news of weekly jobless claims of 6.6 Million. Unemployment claims of the last three weeks now total 17 Million. Investors cheered an announcement by the Federal Reserve that they would offer an expansion of their lending as well as an announcement by OPEC of reducing oil production which helped energy stocks.
  • And on Friday…. we rested.

The week ahead

This coming week is the first week that 1st quarter corporate earnings will be announced.  Investors will be waiting to hear how companies performed in the 1st quarter and what forward looking guidance each company has for their 2nd quarter earnings.  This week we will hear from companies such as Johnson & Johnson, Bank of America, Goldman Sachs, United Healthcare and J.P. Morgan.  At some point stock investors will begin to take their eyes off of statistics related to Covid-19 spread and focus their attention on corporate earnings.  The week ahead is when this will likely occur.

I think it is safe to presume a few things.  First, earnings for the first quarter were slightly impacted by the Covid-19 outbreak as the business climate began to change in March prior to the quarter end.  Second, investors will be more focused on the forward-looking outlook that each of these companies has for their second quarter earnings (April through June).  Finally, stocks have sold off in general out of anticipation that corporate earnings will be challenged, better than expected guidance will likely move those company stock prices higher.

Is the worst behind us?

I think this is a fair question to ask for the foreseeable future.  With the S&P, Dow and Nasdaq all up between 23% and 28% from their low points, there is a considerable buffer in place to keep those indices from re-testing their low points immediately.  It is unlikely however that each week will continue to provide sizeable gains, there will be good weeks and bad weeks along the way to a recovery. It is better to look at a longer-term trend than to pass judgement based off any one week in the market.

Final Thoughts

We hope you were able to enjoy your holiday with those close to you, either in person or remotely via zoom, facetime or google hangout.  There is not necessarily a silver lining to this pandemic, but it is always helpful to take a moment to appreciate those that you care about.  At our firm we are incredibly appreciative of each of you, our clients, and for the trust and confidence that you’ve placed in us to help you ride out these volatile times.  From each of us at Gottfried & Somberg, we say Thank You and Happy Holiday to you.

Sincerely,

Matt

Matthew A. Somberg, AIF®
Accredited Investment Fiduciary®
Co- Founder and Principal