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Markets begin to price in economy’s reopening

APR. 13, 2020


  • Equity markets continue their impressive bounce from the low, with the S&P 500 IndexTM climbing 12% last week, the best weekly performance since 1974 despite being a holiday-shortened week. The market has rallied 25% from the March 23 (best 13-day move in history) low but remains down 14% for the year.
  • The market’s next test could be first quarter earnings season, which begin this week. The first quarter result is of little consequence, but the commentary by management about the future could be instructive. Given the degree of uncertainty, the commentary will likely be noncommittal and cautionary, potentially creating a headwind for equities. Current estimates are for S&P 500 earnings to contract by 8% this year, down from 10% growth expected at the beginning of the year. Earnings are currently expected to bounce back in 2021 to nearly 10% above last year’s result, which likely will see downward revisions.
  • Market volatility remains elevated, though the bond market has calmed dramatically. Credit spreads have narrowed substantially in reaction to the Fed’s aggressive actions, including high yield, commercial paper and the TED spreads. Rates remain low, though the yield curve has steepened, reflection confidence in future growth.


  • OPEC+ announced a record cut of supply to 9.7m bpd for two months, four time greater than the cut in 2008 but half of what was rumored last week. The committed cuts begin to fade in June but remain in place for two years. Demand destruction from the outbreak is expected to be 20-30m bpd.
  • The White House continues to debate the timing and trajectory of the economy’s reopening with the process likely to start in May for a “rolling re-entry.” A plan is being developed around testing, tracing and containment, with states experiencing 14 days of reductions in cases able to begin. Public health officials are less optimistic that this will be sufficient. While keeping the economy closed has an enormous economic impact, the risk in reopening too early (potentially being forced to close again) is catastrophic
  • Congress is under pressure to add to the stimulus relief even though most of the $2.2 trillion from “phase three” has been distributed. Both sides seem committed to boosting the $350 billion Paycheck Protection Program by $250 billion, with Democrats wanting to also add $250 billion to aid states and hospitals.

What to Watch

  • Congress’s progress on “phase four,” developments on the outbreak and commentary from earnings releases will drive markets this week as economic releases continue to be of limited value. Data releases include retail sales on Wednesday, housing starts on Thursday and leading indicators on Friday.

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