As Baseball’s originally scheduled Opening Day passes, we still find ourselves in the early innings of the Coronavirus pandemic. Markets seem to have found their footing last week as corporate bond spreads rallied from their recent wides. That said, expectations for when the economy’s grand reopening are being pushed back and could cause investors to rethink the slightly more positive tone.
The unfortunate reality for the U.S. is that the worst of this pandemic is still to come. Johns Hopkins reported the total number of U.S. deaths from Covid-19 at 2,572 as of Monday morning, with over 143,000 confirmed cases. On Sunday President Trump declared that Federal social distancing guidelines would be extended through April and added that keeping the death toll between 100k – 200k would be considered a “success” for this government. This is a far grimmer outlook than what was discussed in prior weeks.
Good news is that Washington’s $2.2 trillion economic relief package backstopped the markets last week and should start providing real relief to individuals and small business in the next 2-3 weeks. Treasury Secretary Mnuchin described it as a bridge to allow the U.S. economy to cope with the shutdown for the next 8-10 weeks. The problem is that markets will start looking for additional stimulus as the timing on returning to business as usual becomes more difficult to predict. Investors are concerned that the Fed is out of ammunition given all the easing they have already provided, and that the next stimulus package won’t be in play soon enough to stop things from spiraling downward. Market pundits have continued to argue that until Coronavirus testing is available throughout the country it will be difficult to find a real bottom of this crisis.
Hope is on the horizon in this area as it was reported that Abbot Labs created a test that can return almost instantaneous results, which could be broadly available as soon as this week. Stories of improvements in the ability to scale up testing and progress towards a treatment could be the hope that some investors are betting on.
The stock market had its best week since the 1930s, but this relief rally is far from an all clear given the concerns that are still out there. Global equities are mixed as we start the week as oil prices have been hit hard once again on even lower expectations for growth. Unfortunately, all indications are that we remain at the early stages of the Coronavirus outbreak or merely the second inning.
YTD Returns as of EOD Friday 03/27/20
US Barclays Agg +2.67%, 1.61% yield, - 456 bps excess returns
US Barclays Corp -5.11%, 3.69% yield, - 1489 bps excess returns
UST 10yr 0.68% yield, -124 bps
S&P 500 2,541, -21.34%
DJIA 21,636, -24.18%
OIL (WTI) $21.84, -64.32%
Gold 1,630, +7.28%
Spring has sprung and with it, more economic activity and hopes for a more sustained recovery emerge.
We sat down to interview two of IMTC's senior managers on their perspective as former fixed income portfolio managers.