The stock market had a volatile week, which concluded with the Dow Jones Industrials Average and S&P 500 indexes registering their worst weeks since October 2008. Negative sentiment flooded the market as escalating concerns that the rapidly spreading coronavirus outbreak is leading the global economy to a recession. These concerns are not going away anytime soon, and we look to have a long road ahead given the potential increase of new cases of Covid-19 in the U.S. and across Europe. Curve flattening is now a reference to new cases rather than the shape of the yield curve. Efforts have been taken to “flatten” the curve, but we will not be able to measure the success of our attempts for at least a few weeks.
There were a few bright spots last week of strong economic reports, which shows the U.S economy was still growing prior to the pandemic. Retail sales for February, and same-store sales for the first two weeks of March came in strong. A decade-best existing home sales number was released for February, showing the housing market was on strong footing.
This week investors will get the first glimpse of the magnitude of the pandemic in the way of economic data releases. These early indications can highlight the impact, but investors will be keen on the response from governments and central banks who are ramping up stimulus measures. The two main events will be what, if any, stimulus package is agreed upon, and the weekly jobless claims data, which is expected to show a monumental jump as employers prepared for shutdowns. One major hurdle to passing the bill in the Senate seems to be, the sentiment that the package is a “corporate giveaway”. The news that six republican senators are home on Coronavirus leave and unable to vote throws a wrench into the equation for Mitch McConnell who will now need at least some support from Senate Democrats to get the necessary votes to pass the bill.
S&P 500 futures fell in Monday-morning trading in Hong Kong, but rebounded slightly as Schumer said, "disagreements over the bill could be overcome in the next 24 hours." Additional market events to be aware of are Consumer Spending and the Consumer-sentiment reports being released later this week.
YTD Returns as of EOD Friday 03/20/20
US Barclays Agg +0.01%, 2.18% yield, - 568 bps excess returns
US Barclays Corp -10.58%, 4.58% yield, - 1805 bps excess returns
UST 10yr 0.88% yield, -103 bps
S&P 500 2,304, -28.66%
DJIA 19,173, -32.81%
OIL (WTI) $23.64, -61.38%
Gold 1,501, -1.24%
Fixed income markets remained relatively calm this week as the new administration begins its 100-day plan, with investors still weighing how policies will affect their portfolios.
Fixed income investors are anticipating additional stimulus but fear inflation on the back of increased government spending; Powell reiterates that bond market programs won’t be tapered soon.
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