ND&S Weekly Commentary – RESILIENCE

April 20, 2020

Stocks rallied for the second straight week as there were tentative signs that the coronavirus outbreak was slowing, new treatments were showing encouraging results, and the Federal Reserve approach of advanced “whatever it takes” have eased the interim credit crisis.

As a result, the DJIA rose 2.2%, the S&P 500 gained 3.1% and the tech-heavy NASDAQ soared 6.1%. The S&P 500 broad index is now up 28% from its March 23rd low. International equities also finished higher on the week with developed markets up 1.0% and emerging markets gaining 1.6%. Despite the Fed’s unprecedented support of foreign monetary authorities, the US dollar has appreciated especially against the Euro and Yen. We feel that the US will likely be more resilient through this horrific crisis than other developed economies. The US has more impactful and accommodating monetary and fiscal policies at its disposal, a much higher level of health-care spending and has a smaller share of manufacturing in its GDP.

Our hearts and prayers go out to the victims, their families, and healthcare workers affected by the coronavirus. There have been over 2 million confirmed cases worldwide and 690,000 reported cases in the US. The good news is that the social containment efforts are working and the infection and mortality rates are slowing. Last week, President Trump and his staff worked together with governors to begin planning for a return to normalcy and re-opening of the US economy.

The economic data and corporate earnings demonstrate the level of damage the coronavirus and containment efforts have inflicted. Recessionary conditions now exist with another 5.5 million workers applying for unemployment benefits last week bringing the total of furloughed and laid off workers to 22 million (roughly 14% of US workforce). US retail sales declined 8.7% month over month and China’s GDP sank 6.8% in the first quarter. Industrial production slid 5.4% in March, its largest single month decline since 1946. The largest U.S. banks, JP Morgan, Citigroup, and Bank of America started earnings season last week. As a result of the economic shutdown, their revenues and earnings slowed in the first quarter and they warned of increasing their loan loss reserves.

The yield on the 10yr Treasury closed the week at 0.65% which is down from 0.73% the week prior. One year ago the yield was 2.59%. Despite OPEC+ supply cut backs, oil prices hit an 18yr low last week.

This week, existing home sales, the Purchasing Manager Index (PMI) and consumer sentiment will be reported. Almost 20% of S&P 500 companies are scheduled to release results this week. This will give investors a look at the Covid-19 pandemic impact on sectors from airlines to technology companies.

We expect volatility to continue and there likely will be a retest of market lows. As we stated in past weekly commentaries and our recent quarterly newsletter, this too shall pass. Our team is working diligently to monitor markets and researching investments for risks and opportunities.

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” – Thomas Edison