Snapshot Week Ending 4/24/2020
Market Review: Week Ending 4/24/2020
US equities digested the prior two-week record gains with a modest pullback of 1.3% last week, as the S&P 500 Index closed at 2836.1 Highlights of the week included plans to reopen certain states in the coming days/weeks, passage of an additional $484 billion fiscal stimulus package to replenish PPP loans to small businesses, and disappointing news from the results of Gilead Sciences’ Remdesivir tria1.l Oil markets took center stage with the front-month contract for WTI delivery falling below zero for the first time, though a late-week rally in prices left Energy equities as the week’s top sector.1 Despite the rally, WTI oil fell 30% last week, the largest weekly change in history.1 Dislocations are widespread and likely to get worse in Q2, yet only one-month has passed since the March 23 lows and with the 26.8% rally from that low, the S&P 500 is down only 11.7% in 2020.1 Another 4.4m citizens filed for unemployment in the US this week, bringing the 4-week total to over 26m, with expectations for unemployment now set to reach the 15-20% range before the economy is more fully opened later this year.1 The IMF recently updated GDP forecasts considering the pandemic, with expectations for the US now set at -5.9% for 2020 (was +2.1% at year-end) with a World GDP estimate of -3.0% (was +3.0%).1 Equity bear markets rarely last one month and we continue to believe that domestic stocks are discounting a V-shaped recovery that we think is unlikely. We remain slightly underweight equities and think a pullback is likely once the reality of something less than a V-shaped recovery sets in. Investment grade credit is a Fixed Income asset class more interesting to us now following the spike in credit spreads and the willingness of the Federal Reserve to purchase investment grade corporate bonds. Through the close Friday, year to date results for the major indices are as follows: S&P 500 -11.7%, Russell 2000 -25.8%, MSCI EAFE –21.3% and Bloomberg Barclays Aggregate Bond 5%.2
What We’re Watching in the Week Ahead
- Re-opening Steps – We will be watching plans for reopening and attempting to estimate when, and if, activity can return to normal. The state of Georgia gives us the first look after their weekend opening. Are people ready to return to salons, stores, theaters, etc? We will also be watching the daily data on new cases and deaths from Covid-19, as any relapse in the encouraging trends recently would greatly impact investor sentiment.
- Economic Reports – April’s reports of activity hold little value to investors that have become numb to bad results, as they are widely expected to be horrendous in an economy that is largely closed. Still, reports on Auto Sales, Manufacturing ISM and the Conference Board’s Consumer Confidence Index will be interesting as they are expected to show historic declines.
- Earnings Reports – Q1 earnings reporting season continues this week, with bellwethers such as Amazon, 3M, Honeywell, Google, PepsiCo, Caterpillar, Chevron, ExxonMobil, Facebook, Mastercard, and Microsoft set to report.1 Results from a world that existed in Q1 hardly matters at this point, so we will be watching for signs of stress on balance sheets, cash flow shortfalls and indications of the company’s ability and intentions of paying the dividend in all Q1 earnings reports.
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – Chief Compliance Officer
1-Morningstar Direct 4/26/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.