Snapshot April 10th, 2020
Market Review: Week Ending 4/10/2020
US Stocks rose 12.1% last week on signs that the COVID-19 curve could be flattening, the largest percentage weekly gain in 46 years.2 Along with another $2.3T stimulus from the Federal Reserve,2 this is the primary catalyst for a rally of nearly 25% off the March 23rd low in the S&P 500 Index which closed last week at 2789.2 Investors seem willing to look past the horrific economic reports reported, including the 17m weekly jobless claims2 made in the last three weeks alone, leaving those receiving benefits (“Continuing Claims”) at a record 7.5m,2 already surpassing the peak of 6.8m receiving benefits during the Great Financial Crisis.2 Estimates (guesses?) of Q2 GDP has one expecting a 50% fall, though most are in the range of a decline of 10-20%.2 We’ve also seen one estimate for S&P 500 EPS as low as $90 for 2020, down 45% from 2019.2 As equities are discounting mechanisms, it is rational for investors to look to the other side of the crisis for what things might look like in 2021. But should these downbeat forecasts prove even close to being correct, investors should expect more volatility, and by that, we mean pullbacks from current levels. Fundamentum portfolios have higher allocations to cash than their neutral benchmarks and we have tax-loss harvested and raised the quality of portfolio holdings where able. While we believe there is long-term value in equities at current levels, we emphasize long-term, as equities could fall further as the news is likely to get worse before it gets better. The best-case outcome, a quick, V-shape recovery for the economy, is unlikely in our view. Still, bear market rallies of the likes witnessed last week are normal and to be expected, but they are typically followed by a series of retests of recent lows. If the data and news continue to worsen this would not surprise us. Through the close Friday, year to date results for the major indices are as follows: S&P 500 -13.15%, Russell 2000 -24.96%, MSCI EAFE –20.32% and Bloomberg Barclays Aggregate Bond 4.01%.1
What We’re Watching in the Week Ahead
- COVID-19 – With the stimulus plans in place as bridge financing, investors will scour the daily reports of new cases for signs of a peaking in the spread of the virus. It is presumed that the economy can’t restart until there are clear signs of a flattening of the curve. Now that there are glimmers of hope on this front, talk is growing that the economy will soon be reopened. We’ll be closely watching the plans for the reopening and attempting to estimate when and if activity can return to normal.
- Earnings Reports – Q1 earnings reporting season begins this week, with bellwethers such as JPMorgan Chase, Bank of America, Johnson & Johnson, United Healthcare and Schlumberger set to report. Results from a world that existed in Q1 hardly matter at this point, so we will be watching for signs of stress on the balance sheet, cash flow shortfalls and for indications of the company’s ability and intentions of paying the dividend.
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
Sources:
1-Morningstar Direct 4/12/20
2-Factset 4/12/20
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.
