ND&S Weekly Commentary 4/13/20 – Markets Roar Back…

April 13, 2020

We hope that all of you and your families are well. It appears that some of the social distancing measures being taken are showing results in the hardest hit areas around the world. Please continue to follow the Covid-19 protocols in your communities.

Markets roared back last week hopefully providing investors some relief over the long weekend. U.S. equities recorded one of the best weeks in modern history. On the week, the S&P 500 jumped 12.1% and the DJIA gained back 12.7%. The Russell 2000 which represents small/midsized US companies (and has been more impacted by slower growth expectations) catapulted 18.5%. International markets were also strong as developed international markets gained 8.1% while emerging markets increased by 6.8%. The 10yr U.S. Treasury yield increased 11bps to close at a yield of 0.73%. With volatility high and government yields near zero around the world, gold continues to provide investors some protection and closed at $1736 oz. Oil prices will remain volatile as oil producing nations agreed to a production cut over the weekend to reduce oil output by almost 10 million barrels a day. This should alleviate some of the supply imbalance in oil that a global shutdown has created.

We are currently seeing a deterioration in the U.S. labor market of unprecedented speed and magnitude. The March employment report released last week showed a decline of 701K and an unemployment rate that rose to 4.4%. An additional 16.8 million have filed claims for unemployment insurance implying that the unemployment rate is nearly 15%. Markets are hoping that the expanded unemployment benefits and business loans from the $2.3 trillion fiscal package can keep workers and businesses afloat long enough to see a sharp employment recovery when social distancing measures ease.

This week, we will get our first glimpse of first quarter 2020 earnings announcements with 15 S&P 500 companies set to report. We expect earnings for Q1 and Q2 to be quite challenged and somewhat meaningless, but we plan to key-in on management commentary and balance sheet strength. After last week’s rally, it would appear the markets are bit ahead of themselves, and we urge investors to proceed with some caution. 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 additional relief rallies. Remember, bottoms are a process. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.

“The glow of one warm thought is to me worth more than money.” – Thomas Jefferson