ND&S Weekly Commentary (4.6.20) – Coronavirus Uncertainty Continues

April 6, 2020

We hope that all of you and your families are well. It appears that we are headed into a pivotal week for the virus so please continue to follow the Covid-19 protocols in your communities. This crisis will end, and we can all do our part to slow the spread of this pervasive virus.

Last week was another volatile week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19. With coronavirus cases topping one million globally the impact on economies around the world will be massive. In the United States alone, a record 6.6 million Americans applied for unemployment benefits last week.

On the week, the S&P 500 weakened 2.1% and the DJIA declined 2.7%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 7.1%. International markets were not immune from the pullback as developed international markets (MSCI EAFE) gave back 3.7% while emerging markets (MSCI EM) were lower by 1.2%. Bonds were a bit of a safe-haven as the Barclays Aggregate finished higher by 0.73% on the week. The 10yr Treasury ended last week at a yield of 0.62% versus 0.72% the week prior.

Markets have already priced in a global recession (which most likely began in early March). The depth and breadth of the global recession will depend on the course of the virus and the human response (individuals and governments) to those impacted by the virus. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.

The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. We plan to take advantage of pricing dislocations, and it continues to be our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. We will likely see a number of relief rallies, but we remain cautious (a bit less so as each week passes) and don’t plan on jumping at the first sign of a bounce … a bottom will take time to form. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.

A Happy Passover and Easter to all.

“We should take comfort that while we may have more still to endure, better days will return: we will be with our friends again; we will be with our families again; we will meet again.”Queen Elizabeth II