3/27/20 – Strong Week Ends on Down Note

The subject says ‘Weekly Recap’ but last Friday feels like a month ago to me. The market followed up last week’s horrible week with a strong rally, although stocks sold off today, closing near session lows and declining 700 points over the last 20 minutes. Even with the rally this week, I continue to believe we’re still in a downward trend. I don’t think there’s much chance that people will start going back to work until May at the earliest and potentially after that. The economy likely shrank in the first quarter, will definitely shrink in the 2nd quarter and the 3rd quarter will be dependent on how fast we can get people back to work on a regular basis. Even when we return to work, it seems likely cases will start picking up again and we could end up in a rolling lockdown situation through the end of the year. The reality is no one really knows. The market’s activity supports that. Over the last 25 trading days, 21 days have moved up/down by more than 2%; with an average daily move of +/-5%. That’s unheard of for a $22 trillion economy.

The optimistic view is many more people have already had the virus than we currently know. We aren’t testing for antibodies though, so it’s just a guess based on the assumption that if China had cases in November, it likely made it to the US in December, many weeks before the first official case in late January. One thing that concerns me is the low percentage of tests that are coming back positive. Stats I’ve seen suggest ~90% of all tests are negative, which doesn’t test antibodies, but does make it seems like there are many people who still need to get this virus. For the week, the Dow gained 12.8% while the S&P500 added 10.3%. The Dow remains almost 27% below the mid-February highs and the S&P500 is 25% below the highs.      

The government passed a $2 trillion stimulus bill this week. This bill was a necessary evil to keep laid-off workers able to buy food and certain industries from imploding. CNBC reported today numerous flights were traveling with less than 10 passengers. The entire travel, hospitality and restaurant industry is in trouble. Commercial real estate as well. The Cheesecake Factory, which was in a reasonably strong financial position at year end, announced it isn’t paying rent in April on any of its ~300 restaurants. This is happening to numerous businesses and industries across the country as forced shutdowns stretch across the country. While the bailout will help many, it won’t help everyone. The airlines in particular agreed to not furlough any employees through September as a result of receiving the bailout. Many workers are being laid-off though. Last week, over 3.2 million initial jobless claims were filed. To put that into perspective, during the financial crisis, the highest weekly total of initial unemployment claims was 665k. The prior weekly record was 695k set in 1982. Point is, this is significantly higher than anything we’ve ever seen. Read More

Oil climbed this week after its 40% collapse last week, increasing 8.9% to close at $21.60/barrel. There was talk this week oil could drop in the high single digits. Even at the current level, many energy companies could go bankrupt if the price stays here for another few months. The yield on the 10-year Treasury decreased to close at 0.71%, from 0.89% last week. The average rate on a 30-yr fixed rate mortgage declined to 3.50% from 3.65% a week ago.

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