Market and Economic Commentary - Week Ending 03/20/2020
Market and Economic Commentary - Week Ending 03/20/2020
Stocks ended their worst week since October 2008 with a sharp selloff into Friday's close that left both the Dow and S&P 500 more than 4% lower on the day. Analysts at Goldman Sachs now expect U.S. growth to contract 24% in the second quarter, which would mark by far the largest quarterly drop in GDP on record. All three top benchmark indexes suffered their worst weekly performances since the 2008 financial crisis: The Dow dropped 17% for the week, the S&P 500 sank 15% and the Nasdaq tumbled more than 12%.
Combating economic fallout
President Trump signed a $100B coronavirus relief bill and Congress turned its focus to broader economic stimulus, weighing a fiscal package of more than $1Trillion that includes for Americans. Treasury Secretary Steven Mnuchin also said corporations would be able to defer tax payments of up to $10Million, while individuals could defer up to $1Million in payments to the IRS. Adding to the sentiment, the Fed announced reopened crisis-era commercial paper and money market funding facilities and increased access to dollars to global central banks grappling with liquidity shortages.
Jobless claims
The number of Americans applying for first-time unemployment benefits jumped last week, increasing by 70,000 to 281,000, marking the fourth-biggest weekly increase on record going back to 1967. The spike was tied to the coronavirus pandemic as businesses shut down in industries from leisure to hospitality.
Easing around the world
The ECB launched a €750Billion bond-buying program to stop a pandemic-induced financial rout shredding the eurozone's economy, bringing this year's planned purchases to €1.1Trillion (the new round alone is worth 6% of the bloc's GDP). Australia made a historic foray into quantitative easing, while the BOJ offered to buy as much as ¥1.3Trillion ($12Billion) of its government bonds. Fiscally, governments around the world during the week pledged, or said they were considering, as much as $3Trillion in support.
Global recession is here
Economists at Morgan Stanley and Goldman Sachs and other Wall Street analysts to declare that COVID-19 will push the global economy into recession. The projections put more pressure on policy makers to inject enough stimulus so demand increases once the virus is under control.
Volatility
A new record was seen during the week as the S&P 500 swung 4% or more in either direction for seven consecutive sessions, topping the previous record of six days from November 1929. Headlines were filled with "circuit breakers, "limit up and limit downs," while Wall Street recorded its worst day since the 1987 crash on Monday.
Stock Exchange
(NYSE:ICE) is temporarily closing its trading floors and will move to electronic trading this coming week after an employee and a trader were tested positive for COVID-19. "We continue to firmly believe the markets should remain open and accessible to investors," said NYSE President Stacey Cunningham. "Closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment, and reduce investors’ access to their money. This would only further compound the current market anxiety."
US Major Market Index Performance (The first number is each category is the 1-week performance. The second number is the year-to-date performance)
Dow Jones 30 Industrial Average (-17.30%. -32.81%). S&P 500 (-14.98%, -28.66%). NASDAQ Index (-12.64%, -23.33%). US Small-Cap Index (-16.30%, -39.29%). CBOE Volatility Index, or Fear Gage, (+14.20%, +379.25%).
US Sector ETFs
XLC Communication Services (-12.92%, -25.00%). XLY Consumer Discretionary (-14.16%, -29.99%). XLP Consumer Staples (-10.97%, -19.97%). XLE Energy (-19.96%, -56.93%). XLF Financial (-17.96%, -38.56%). XLV Health Care (-12.76%, -22.35%). XLI Industrials (-18.33%, -36.91%). XLB Materials (-12.53%, -33.77%). XLRE Real Estate (-23.08%, -29.76%). XLK Technology (-15.17%, -22.09%). XLU Utilities (-17.08%, -26.00%).
Global Market ETFs
ACWI all-country World index (-13.61%, +25.17%). ACWX all-country World index ex US (-11.82%, -31.96%). AAXJ all-country Asia ex Japan (-12.03%, -25.17%). EWJ Japan (-2.51%, -23.85%). EZU Eurozone (-12.95%, -36.81%). ILF Latin America 40 Index (-23.27%, -50.40%). EEM Emerging Markets (-13.23%, -30.11%).
Commodities ETFs DBC Commodity Tracking Index (-9.66%, -31.41%). DBA Commodities Agriculture (-1.82%, -15.62%). USO United States Oil (-29.02%, -61.44%). DBB Base Metals (-9.91%, -18.47%). IAU Gold (-2.20% *1.86%). BDRY Dry Bulk Shipping (-14.91%, -62.33%).
Bond Market
In the bond market, the 10-year US Treasury interest rate went from 0.983 on March 13, to 0.885 on March 20, for a 9.96% decline on the week.
Currencies
In currencies, the US Dollar DXY Index went from 98.764 on March 13, to 103.502 on March 20, for a 4.80% gain for the week.
Other Significant Events
Week Ahead
The novel coronavirus will continue to dominate the headlines, with investors monitoring the spread of Covid-19 and hoping for more stimulus measures from central banks and governments worldwide. On the economic data front, the US jobless claims are seen jumping to a record high, while flash PMI surveys for the US, UK, Eurozone, Japan and Australia will provide an insight into the early impact of the pandemic on the global economy.
US Jobless Claims Jump to 2-1/2-Year High
The number of Americans filling for unemployment benefits increased by 70 thousand to 281 thousand in the week ended March 14 from the previous week's unrevised level of 211 thousand and well above market expectations of 220 thousand. This was the highest level for initial claims since September 2, 2017 when it was 299 thousand. The sharply rise in initial claims was clearly attributable to impacts from the COVID-19 virus. According to unadjusted data, the biggest rises were seen in California (+14,823), Washington (+8,230) and Nevada (+4,192) while the largest decreases were reported in Arkansas (-611), Alabama (-483) and Puerto Rico (-240). Meantime, continuing jobless claims increased by 2 thousand to 1,701 thousand.
DXY Reaches 100, Trades at Near 3-Year High
The dollar index increased to 100.4 on Wednesday, the highest level in near 3 years, and after gaining 1.5% on Tuesday as investors and businesses seek for liquidity as many companies, stores and plants are closed already and stock markets remain volatile. Also, investors continue to run away from riskier currencies and welcomed Trump administration stimulus plan of $1 trillion which includes direct payments to Americans, deferred taxes and focalized aid.
US Retail Sales Post Biggest Fall in Over a Year
Retail sales in the US dropped 0.5 percent from a month earlier in February 2020, following an upwardly revised 0.6 percent increase in January and missing market expectations of a 0.2 percent rise. It was the largest decline in trade since December 2018 as consumers cut back spending on a range of products, including motor vehicles & parts (-0.9 percent vs 0.8 percent), furniture (-0.4 percent vs 3.2 percent), electronics & appliances (-1.4 percent vs 0.6 percent), building materials (-1.3 percent vs 3.3 percent), health & personal care products (-0.1 percent vs 0.8 percent) and clothing (-1.2 percent vs -1.4 percent). Receipts also declined at gasoline stations (-2.8 percent vs -0.4 percent), restaurants & bars (-0.5 percent vs 0.8 percent) and general merchandise stores (-0.1 percent vs 0.5 percent). Excluding automobiles, gasoline, building materials and food services retail sales were unchanged last month after increasing by 0.4 percent in January.
NY Manufacturing Activity Shrinks the Most in 11 Years
The New York Empire State Manufacturing Index in the United States slumped to -21.5 in March of 2020 from 12.9 in February, hitting the lowest level since March of 2009. It compares with market expectations of 4.4. The new orders index dropped to -9.3 from 22.1 in February; the shipments index fell to -1.7 from 18.9; delivery times lengthened slightly (2.2 from 8.3), and inventories increased (5.8 from 12.9). Employment levelled off (-1.5 from 6.6), and the average workweek declined (-10.6 from -1.6). Input price increases were little changed (24.5 from 25), while selling prices increased at a slower pace than last month (10.1 from 16.7). Optimism about the six-month outlook fell sharply to 1.2 from 22.9, with firms less optimistic than they have been since 2009.
Thank you and please stay tuned for more upcoming reports.
Be sure to visit my website. Institutional Investors may subscribe and ask for a free copy of the "Bull Valley Advisor" stock market newsletter:
www.bullvalleyadvisors.com
You can also subscribe and listen to my podcasts on Anchor at:
anchor.fm/len-martinez-phd-cpa
You can also subscribe and listen to my podcasts on Google Podcasts, Apple Podcasts, Breaker, Radio Public and Spotify.
Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.
Stocks ended their worst week since October 2008 with a sharp selloff into Friday's close that left both the Dow and S&P 500 more than 4% lower on the day. Analysts at Goldman Sachs now expect U.S. growth to contract 24% in the second quarter, which would mark by far the largest quarterly drop in GDP on record. All three top benchmark indexes suffered their worst weekly performances since the 2008 financial crisis: The Dow dropped 17% for the week, the S&P 500 sank 15% and the Nasdaq tumbled more than 12%.
Combating economic fallout
President Trump signed a $100B coronavirus relief bill and Congress turned its focus to broader economic stimulus, weighing a fiscal package of more than $1Trillion that includes for Americans. Treasury Secretary Steven Mnuchin also said corporations would be able to defer tax payments of up to $10Million, while individuals could defer up to $1Million in payments to the IRS. Adding to the sentiment, the Fed announced reopened crisis-era commercial paper and money market funding facilities and increased access to dollars to global central banks grappling with liquidity shortages.
Jobless claims
The number of Americans applying for first-time unemployment benefits jumped last week, increasing by 70,000 to 281,000, marking the fourth-biggest weekly increase on record going back to 1967. The spike was tied to the coronavirus pandemic as businesses shut down in industries from leisure to hospitality.
Easing around the world
The ECB launched a €750Billion bond-buying program to stop a pandemic-induced financial rout shredding the eurozone's economy, bringing this year's planned purchases to €1.1Trillion (the new round alone is worth 6% of the bloc's GDP). Australia made a historic foray into quantitative easing, while the BOJ offered to buy as much as ¥1.3Trillion ($12Billion) of its government bonds. Fiscally, governments around the world during the week pledged, or said they were considering, as much as $3Trillion in support.
Global recession is here
Economists at Morgan Stanley and Goldman Sachs and other Wall Street analysts to declare that COVID-19 will push the global economy into recession. The projections put more pressure on policy makers to inject enough stimulus so demand increases once the virus is under control.
Volatility
A new record was seen during the week as the S&P 500 swung 4% or more in either direction for seven consecutive sessions, topping the previous record of six days from November 1929. Headlines were filled with "circuit breakers, "limit up and limit downs," while Wall Street recorded its worst day since the 1987 crash on Monday.
Stock Exchange
(NYSE:ICE) is temporarily closing its trading floors and will move to electronic trading this coming week after an employee and a trader were tested positive for COVID-19. "We continue to firmly believe the markets should remain open and accessible to investors," said NYSE President Stacey Cunningham. "Closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment, and reduce investors’ access to their money. This would only further compound the current market anxiety."
US Major Market Index Performance (The first number is each category is the 1-week performance. The second number is the year-to-date performance)
Dow Jones 30 Industrial Average (-17.30%. -32.81%). S&P 500 (-14.98%, -28.66%). NASDAQ Index (-12.64%, -23.33%). US Small-Cap Index (-16.30%, -39.29%). CBOE Volatility Index, or Fear Gage, (+14.20%, +379.25%).
US Sector ETFs
XLC Communication Services (-12.92%, -25.00%). XLY Consumer Discretionary (-14.16%, -29.99%). XLP Consumer Staples (-10.97%, -19.97%). XLE Energy (-19.96%, -56.93%). XLF Financial (-17.96%, -38.56%). XLV Health Care (-12.76%, -22.35%). XLI Industrials (-18.33%, -36.91%). XLB Materials (-12.53%, -33.77%). XLRE Real Estate (-23.08%, -29.76%). XLK Technology (-15.17%, -22.09%). XLU Utilities (-17.08%, -26.00%).
Global Market ETFs
ACWI all-country World index (-13.61%, +25.17%). ACWX all-country World index ex US (-11.82%, -31.96%). AAXJ all-country Asia ex Japan (-12.03%, -25.17%). EWJ Japan (-2.51%, -23.85%). EZU Eurozone (-12.95%, -36.81%). ILF Latin America 40 Index (-23.27%, -50.40%). EEM Emerging Markets (-13.23%, -30.11%).
Commodities ETFs DBC Commodity Tracking Index (-9.66%, -31.41%). DBA Commodities Agriculture (-1.82%, -15.62%). USO United States Oil (-29.02%, -61.44%). DBB Base Metals (-9.91%, -18.47%). IAU Gold (-2.20% *1.86%). BDRY Dry Bulk Shipping (-14.91%, -62.33%).
Bond Market
In the bond market, the 10-year US Treasury interest rate went from 0.983 on March 13, to 0.885 on March 20, for a 9.96% decline on the week.
Currencies
In currencies, the US Dollar DXY Index went from 98.764 on March 13, to 103.502 on March 20, for a 4.80% gain for the week.
Other Significant Events
Week Ahead
The novel coronavirus will continue to dominate the headlines, with investors monitoring the spread of Covid-19 and hoping for more stimulus measures from central banks and governments worldwide. On the economic data front, the US jobless claims are seen jumping to a record high, while flash PMI surveys for the US, UK, Eurozone, Japan and Australia will provide an insight into the early impact of the pandemic on the global economy.
US Jobless Claims Jump to 2-1/2-Year High
The number of Americans filling for unemployment benefits increased by 70 thousand to 281 thousand in the week ended March 14 from the previous week's unrevised level of 211 thousand and well above market expectations of 220 thousand. This was the highest level for initial claims since September 2, 2017 when it was 299 thousand. The sharply rise in initial claims was clearly attributable to impacts from the COVID-19 virus. According to unadjusted data, the biggest rises were seen in California (+14,823), Washington (+8,230) and Nevada (+4,192) while the largest decreases were reported in Arkansas (-611), Alabama (-483) and Puerto Rico (-240). Meantime, continuing jobless claims increased by 2 thousand to 1,701 thousand.
DXY Reaches 100, Trades at Near 3-Year High
The dollar index increased to 100.4 on Wednesday, the highest level in near 3 years, and after gaining 1.5% on Tuesday as investors and businesses seek for liquidity as many companies, stores and plants are closed already and stock markets remain volatile. Also, investors continue to run away from riskier currencies and welcomed Trump administration stimulus plan of $1 trillion which includes direct payments to Americans, deferred taxes and focalized aid.
US Retail Sales Post Biggest Fall in Over a Year
Retail sales in the US dropped 0.5 percent from a month earlier in February 2020, following an upwardly revised 0.6 percent increase in January and missing market expectations of a 0.2 percent rise. It was the largest decline in trade since December 2018 as consumers cut back spending on a range of products, including motor vehicles & parts (-0.9 percent vs 0.8 percent), furniture (-0.4 percent vs 3.2 percent), electronics & appliances (-1.4 percent vs 0.6 percent), building materials (-1.3 percent vs 3.3 percent), health & personal care products (-0.1 percent vs 0.8 percent) and clothing (-1.2 percent vs -1.4 percent). Receipts also declined at gasoline stations (-2.8 percent vs -0.4 percent), restaurants & bars (-0.5 percent vs 0.8 percent) and general merchandise stores (-0.1 percent vs 0.5 percent). Excluding automobiles, gasoline, building materials and food services retail sales were unchanged last month after increasing by 0.4 percent in January.
NY Manufacturing Activity Shrinks the Most in 11 Years
The New York Empire State Manufacturing Index in the United States slumped to -21.5 in March of 2020 from 12.9 in February, hitting the lowest level since March of 2009. It compares with market expectations of 4.4. The new orders index dropped to -9.3 from 22.1 in February; the shipments index fell to -1.7 from 18.9; delivery times lengthened slightly (2.2 from 8.3), and inventories increased (5.8 from 12.9). Employment levelled off (-1.5 from 6.6), and the average workweek declined (-10.6 from -1.6). Input price increases were little changed (24.5 from 25), while selling prices increased at a slower pace than last month (10.1 from 16.7). Optimism about the six-month outlook fell sharply to 1.2 from 22.9, with firms less optimistic than they have been since 2009.
Thank you and please stay tuned for more upcoming reports.
Be sure to visit my website. Institutional Investors may subscribe and ask for a free copy of the "Bull Valley Advisor" stock market newsletter:
www.bullvalleyadvisors.com
You can also subscribe and listen to my podcasts on Anchor at:
anchor.fm/len-martinez-phd-cpa
You can also subscribe and listen to my podcasts on Google Podcasts, Apple Podcasts, Breaker, Radio Public and Spotify.
Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.
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