ND&S Market Commentary 3.30.20 – Markets Jump on Stimulus Hopes

March 30, 2020

Equity markets closed lower on Friday but still recorded large gains for the week as the coronavirus (Covid-19) continued to spread across the globe. Expectations are for further acceleration of confirmed cases as testing becomes more widespread … increased testing will provide a better reading on the virus’s prevalence and severity. To offset the financial pressures of the nationwide shutdown, the Federal Reserve announced massive policy measures to support credit and lending, while Congress passed a bipartisan bill which included a $2 trillion rescue package for businesses and households on Friday. The bill includes direct payments to individuals and aid to large corporations and small businesses.

For the week, the S&P 500 climbed 10.3% notching its biggest gain since March 2009. The DJIA rose 12.8% marking the biggest weekly gain for the index since 1938. International markets also rallied with developed markets (MSCI EAFE) up 11.2% and emerging markets (MSCI EM) advancing 5%. Bonds posted a strong week as normalcy returned to fixed income markets. The 10yr Treasury closed at a yield of 0.72% which is down from 0.92% the week prior.

We are going to see incredibly steep contractions in economic data over the next several weeks and months; however, these reports will have minimal impact on the markets as focus will be 6-9 months out. As an example, unemployment claims skyrocketed to 3.3 million for the week ending March 21, which is more than 3x the previous record high. Most of claims were from the service industries -specifically accommodation and food services. This week look for economic reports on consumer confidence and monthly employment which should start to reflect job losses from the virus.

Monday and Friday saw market declines, but Tuesday through Thursday saw the biggest 3-day rally since 1931. We expect markets to remain volatile until there are signs of the virus slowing and success at “flattening the curve”. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, as a bottom will take time to form. It is our intention to begin to redeploy higher-than-normal cash levels as opportunities present themselves. Long-term investors should remember that since 1928, through 14 recessions and 21 bear markets, equity markets have never failed to regain a prior peak. This time will be no different.

“The investor who says, this time is different, when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” – John Templeton