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Last week was another volatile one for financial markets amid the covid-19 pandemic. On Tuesday, stocks closed down to wrap up one of the worst quarters in history- the Dow registered a quarterly loss of 22% while the S&P 500 shed 20%- its worst since 2008, and its worst first quarter since 1938. The following day saw another selloff, after Trump announced the country could record between 100,000 to 240,000 deaths from the coronavirus. Both the Dow and S&P fell 4.4%, settling at 20,943 and 2,470, respectively.
Although Treasuries endured a sell-off of their own in mid-March while equities also tanked (you typically see an inverse relationship), the Federal Reserve’s open-ended bond purchasing has helped stabilize yields and provide liquidity in Treasury markets- on Wednesday (4/1) the 10-year fell to a three-week low of 0.630%. Wednesday also saw the first corporate victim of the Russia-Saudi Arabia oil price war- Whiting Petroleum was the first debt-burdened shale oil company to file for bankruptcy, but not before approving $14.6 million in cash bonuses for its top executives.
The latest report on unemployment claims was released on Thursday- 6.648 million people applied for unemployment benefits, which brought the total to over 10 million in two weeks. Thursday also saw the largest one-day jump on record for crude oil- West Texas Intermediate (WTI) popped 24.7% to $25.32 per barrel after the president stated he expects Russia and Saudi Arabia to pare back production and China has indicated it would increase its own purchases to supplement its strategic reserves. Stocks had gone negative intraday after digesting the unemployment claims numbers but later bounced back as oil prices increased.
On Friday the US Bureau of Labor Statistics reported 701,000 jobs were lost in March, pushing unemployment up 0.9 percentage points to 4.4% from 3.5% and representing the first decline in job creation in a decade. Not surprisingly, 459,000 of these jobs were in the leisure and hospitality sector. Despite the bad numbers, both major indices closed with only modest losses, suggesting investors had already “priced in” the bad news, and that the days of trigger-breaking sell-offs may be behind us (at least, that is the hope). However it’s important to note the shutdown happened in mid-March- April, the first full month of post-shutdown jobs data, won’t be reported until May 8.
Also last week, Treasury Secretary Steve Mnuchin announced assistance payments to individuals under the coronavirus relief legislation will begin showing up in bank accounts within two weeks for those with direct deposit and a “matter of weeks” for those without. He also provided more details about the $349 billion small business bailout fund (part of the $2.2 trillion economic rescue package), which launched Thursday morning. The US Treasury will back forgivable loans of up to $10 million to cover payroll and other business expenses and is working with banks to make these loans available to businesses with less than 500 employees.
As of this writing Sunday evening (4/5), stock futures are up as the weekend saw a slower pace of new covid-19 cases. The US Surgeon General Jerome Adams stated earlier today that this coming week “is going to be the hardest and saddest week of most Americans’ lives” but added Americans could “change the trajectory of this epidemic by following social distancing guidelines.” The Centers for Disease Control and Prevention (CDC) on Friday added a recommendation to “use cloth face coverings” when leaving our homes- a guideline which may help stave off the spread of the virus.
So again, much like the past few weeks, the world continues to search for an indication as to the duration and extent of the outbreak, wishing to know when we can “return to normal.” Unfortunately that doesn’t seem to be for another couple weeks at the earliest, and may even stretch well into the summer. With the White House, Treasury and the Fed all signaling they’ll do whatever it takes to sustain the economy, gold ($GLD) continues being a solid option for purchasing power preservation. Another commodity that seems poised to bounce back, oil ($USO), may be another, albeit riskier, alternative if one wishes to see price appreciation in the short- to mid-term. And if one is determined to hold stocks, consumer staples and perhaps health care are the sectors of choice.