ND&S Weekly Commentary – “Negative” Oil Grabbed Headlines

April 27, 2020

Markets started last week on the decline, driven by volatility in the oil markets, before recovering some ground and ending the week slightly negative. Due to lack of storage space in Cushing, Oklahoma where physical settlements take place, the price for May contracts for WTI oil fell below zero for the first time in history. On Friday, President Trump signed a $484 billion fourth relief package that replenishes the Payroll Protection Plan bringing total relief funds to nearly $3 trillion with more anticipated.

For the week, the S&P 500, the DJIA and NASDAQ were all negative at -1.3%, -1.9% and -0.2%, respectively. One small positive was that small caps, as measured by the Russell 2000, finished up 0.3%. Small caps have been among the worst performers year-to-date as they are impacted by the slow growth environment. International equities were also negative last week with developed markets declining 2.0% and emerging markets down 2.4%. In fixed income, U.S. Treasuries continued to provide some stability as the yield on the 10 year declined from 0.7% to 0.65%. Municipals backed down somewhat as most states now face large deficits and long-term pension liabilities grow.

This week, economic reports are expected on 1st quarter GDP, ISM mfg., and consumer confidence … all are expected to show declines. On a positive note some states, including Alaska, Georgia, South Carolina, Tennessee and Texas are expected to start announcing easing of lockdowns. New York State has also stated they will start to reopen in phases.

Earnings season is in full swing and so far S&P 500 earnings growth is down roughly 20.7% year over year while revenues are up 2.0%. Most companies have stopped issuing forward guidance due to the uncertainty of Covid-19 containment efforts. This will be a big week of company reports as Facebook (FB), Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Microsoft (MFST) are scheduled to report. Look for markets to continue to be volatile and focused on progress or improvements on treating the Coronavirus.

“The trick to forgetting the big picture is to look at everything close-up” – Chuck Palahniuk