May 3, 2020 Weekend Market Thoughts by Matt Somberg

Sunday May 3, 2020

 

Dear Friend,

We hope this email finds all of our clients and their families well. For clients in New England, we hope you had a nice weekend and enjoyed the glorious weather. 

As has been customary over the last nine weeks, we share a few thoughts with you this Sunday evening.

Last week

  • The Dow Jones Index declined .22% and is now down 16.9% since January 1st
  • The S&P 500 declined .21% and is now down 12.4% since January 1st
  • The NASDAQ declined .34% and is now down 4.1% since January 1st

April closed out as a historically positive month for the markets. It was the best month for the Dow and S&P since January 1987, with gains of 11.1% and 12.7%. The Nasdaq had its best month since June 2000 with a gain of 15.5% in April.

The Dow, S&P and Nasdaq are all up approximately 30% from their March 23rd lows.

 There were three noteworthy takeaways from last week

1)     3.8 million more Americans file for unemployment

Thursday’s jobs report announced 3.8 million Americans filed for unemployment, bringing the total to over 30 million claims in the last six weeks. Nearly 37 million Americans are now out of work.  There are roughly 200 million Americans of working age, so the number of unemployed is now approximately 1 out of 5.5. While the weekly claims figure is staggering, it is trending downward from the prior two weeks.

2)     Almost half the states have opened - or are on the cusp of opening - for business

Each state’s approach to restarting its economy varies, but the only way the unemployment rate will go down is for businesses to reopen. There is a delicate balance between allowing people to return to work and trying to prevent further spread of the virus. At this time, 17 states have partially reopened their economies, with 6 more states set for a partial reopening this week.  

3)     The Food and Drug Administration (FDA) issued an emergency use authorization to treat Covid-19

Gilead Sciences has developed an antiviral treatment, Remdesivir. While the drug is not a vaccine nor a cure, it has positive outcomes in terms of shortening the recovery time for Covid-19 patients. According to the Milken Institute, there are currently nearly 200 treatments and almost 100 vaccines under development for Covid-19.

What lies ahead for us this week?

·        We remain in earnings season as companies continue to report their first quarter results and give guidance on the second quarter.  This week we look forward to results from Disney, American Express and Costco amongst others.

·        Florida, Indiana, Kansas, Missouri, Nebraska and West Virginia will all lift social distancing restrictions in some capacity this week.

Finally - Where are we now and where are we going?

In March and April, the Federal Reserve and Congress intervened in an unprecedented fashion to keep the American economy out of a Depression. The Federal Reserve slashed interest rates to zero and has added more than $6 trillion dollars to its balance sheet through it bond purchasing program. Congress passed the CARES ACT at a cost of over $2 trillion dollars and may need to do more if the virus continues to spread or reemerges in the fall. The amount of debt our government has incurred to get our economy through the next few months is tremendous.

As many expected, corporate earnings were challenged in the first quarter. In some instances, companies have withdrawn guidance for future profits as they cannot accurately predict how profitable or unprofitable they will be in the short term. This uncertainty is expected.

The panic selling from March is now behind us.  Investment markets will now move up and down based on corporate earnings, unemployment data and any news regarding a vaccine for Covid-19.  These are the three issues that will move the markets higher or lower in the short term.  Each Thursday morning there is a report of unemployment claims from the prior week.  For our economy to improve we need to see a downward trend in our weekly unemployment numbers.

We hope you have a great week!

 

Sincerely,
Matt Somberg

 

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