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Investors eye the reopening of the economy

APR. 21, 2020


  • Market volatility remains intense, as subtle changes in the tone of the news drives dramatic shifts in investor sentiment. Markets rallied sharply last week on hope that the worst of the outbreak is behind us. The S&P 500 IndexTM is now up 29% from the recent low and down just 11% for the year. This optimism is likely to face headwinds, as the reopening of the economy is heading for an intense debate.
  • The market rebound has seen notable deviation in performance between winners and losers. Multinational companies with strong balance sheets and a technology focus continue to lead, with the NASDAQ total return ticking positive for the year on Friday while the broader S&P 500 still has a double-digit decline. Notable gainers for the year include Microsoft, Amazon and Netflix. Banks, energy companies and deep cyclicals remain down more than 40% for the year.
  • Liquidity and risk metrics continue to reflect the calming of investor fear, with substantial tightening of high yield and commercial paper spreads, a dramatic reversal in investor sentiment, and strong momentum indicators. The S&P 500 rose above the 50-day moving average for the first time since February 21. Some fear gauges remain stubbornly high, including the VIX at 42 and the TED spread at 0.98.


  • The Senate is nearing a deal that would add an additional $370 billion in stimulus, with $310 billion added to the Paycheck Protection Program than exhausted the original $349 billion last Thursday. The remaining $60 billion would go to the Economic Injury Disaster Loan program, a separate program to support small business. There is also discussion of an additional $100 billion for hospitals and tests. The goal is to pass the Senate on Monday and the House on Tuesday.
  • Some governors are making plans to reopen their economies as the debate intensifies. As a sign of the times, even the debate around the reopening of the economy is reflecting the political divide. Per the Wall Street Journal, 77% of Democrats are expressing concern about opening too quickly, compared with 39% of Republicans. By contrast, 48% of Republicans expressed worry the US will take too long, compared with 19% of Democrats.
  • Crude prices continue to collapse, with the current month contract expiring tomorrow down nearly 40% to just above $11. Most traders are now focused on the June contract, which fell 10% to $22. Demand has collapsed by three times the 10m bpd that OPEC+ has agreed to cut. The futures curve is steeper than normal because the current oil being produced is largely being stored, and the system is running out of storage space.
  • While earnings season is early (just 9% reporting), we are beginning to get an idea of the scope of the damage. The blended earnings decline is -15%, tracking to be the worst quarter since 3Q09. Sectors experiencing the most severe decline include Energy, Financials, Consumer Discretionary, Industrials, and Materials.

What to Watch

  • Earnings season will accelerate this week, providing a clearer picture of the current situation. Economic data include existing home sales on Tuesday, PMI data on Thursday and durable goods and consumer sentiment on Friday.

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  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

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