April 5, 2020, Weekend Market Thoughts by Matthew Somberg

Sunday, April 5, 2020

Dear Friend,

I hope this email finds you and your family well.  To our clients who are working hard as medical professionals, we thank you for your efforts.

As has become tradition during these unprecedented times, I wanted to send you a few thoughts this Sunday evening as we look back at last week and forward to the week ahead.

Last week

  • For the week, the Dow Jones Index, a list of 30 American blue-chip companies, declined 2.7% and is now down 26.2% since January 1st
  • The S&P 500, the largest 500 American companies, declined 2% on the week and is now down 22.9% since January 1st
  • The Nasdaq, which is heavily weighted with technology-oriented companies, declined 1.7% for the week and is now down 17.8% since January 1st

Last week was the calmest and least volatile trading week since the week ending March 6th. Irrespective of the market’s calm week, 6.6 Million Americans filed for unemployment in addition to the 3.3 Million Americans who filed the week before.

Was there any positive news?

Yes, we are seeing a breakdown in correlation of companies within the S&P 500. That’s a fancy way of saying that stocks of companies that will hold up well during the recession are performing much better than stocks from sectors that have a long road to recovery. This signals that investors are buying individual stocks instead of indiscriminately selling across the board as we saw prior to last week. 

Even though industries such as cruise lines, airlines and restaurants continue to see their stocks decline, sectors such as technology, health care and financials have begun to stabilize. Investors are beginning to consider how their portfolio should be positioned when the Covid-19 crisis has subsided.

Is the worst behind us?

This is difficult to predict.  Markets will often give a ‘head fake’ when rebounding from their low points. This weekend we heard from Surgeon General Jerome Adams that the worst is yet to come for virus spread and fatality. While more virus spread does not necessarily mean stocks lose value, we need to be prepared for discouraging virus news capturing our headlines.  With each day we get closer to flattening the curve, getting Americans back to work and re-opening businesses. 

There was a best-selling book turned movie in the early 90’s called The Perfect Storm, by Sebastian Yunger.  It’s the story of the fishing boat, The Andrea Gail, and a group of Gloucester fishermen who are caught in a once-in-a-lifetime storm. The men endure the storm and suddenly find themselves in calm waters with sunny skies. For a few moments, they believe the worst is behind them and begin to celebrate. But then, when they see dark skies ahead, they realize they are only in the eye of the storm. The stock market and our economy still likely have storm clouds ahead of them, but this storm will not last forever.

What about the Congressional relief package that was passed? Isn’t that supposed to help?

Congress passed the CARES Act two weeks ago. The two most important provisions pertain to unemployment and small business relief. The program provides $250 billion for extended unemployment benefits which is critical with unemployment soon to be at an all-time high.  On Friday, the small business relief provision went into effect.  30 Million American small businesses are eligible to apply to receive assistance for their payroll and other fixed expenses in an effort to keep Americans employed. The government will be sending out checks on a first-come, first-served basis.

It was interesting to listen to business owner clients as they shared their experiences applying for this aid on Friday. Applications were made through local banks and some banks were ready to move forward with the application while others were not prepared and could not help their customers. It is clear that the $350 billion dollars available to small businesses will take some time to reach the hands that need it the most. While it is not an ideal scenario, it is a step in the right direction toward blunting the negative economic impact of the virus.

The week ahead

This is a short week with the markets closed on Good Friday. On Monday, OPEC, a group of oil-exporting countries will meet with Russia to discuss stabilizing oil prices.  We anticipate energy companies in the United States will see their stock prices rise as a result of a decrease in energy supply.  Thursday we will receive our weekly update on unemployment claims and will compare this past week’s claims to the prior week’s 6.6 million.  A lower unemployment number this week will be positively received by investors, and a higher number will likely lead investors to sell as they go into the holiday weekend.

I wish you and your family a Happy Passover and a Happy Easter. While this year our celebrations will look different than they usually do, I hope you enjoy your time with your family, and stay healthy and safe.

Regards,
Matt

 

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