April 7, 2020
Good Tuesday morning,
There is a lot of information to unpack today, so let’s start with the markets. Yesterday experienced a solid rally in the U.S. stock markets, in fact the third-largest point gain in history for the Dow. For the day, the Dow gained 1,627 points, or 7.73%; the S&P 500 gained 175 points, or 7.03%; and the NASDAQ gained 540 points, or 7.33%. It wasn’t the point gain that got our attention as much as the reason for the gain. Over last weekend, it was reported that while the number of coronavirus cases were still increasing, they were increasing at a slower rate than in recent weeks. A glimmer of optimism sent the bulls charging on Wall Street.
As of 6am PDT today, the Dow futures are up 851 points, as it was reported by the Administration that there were 10 therapeutics in active trials and look to be “incredibly successful” and fifteen other potential treatments advancing toward clinical trials. It seems clear, at least at this point, that the investment markets are responding very positively to the medical advancements towards defeating the coronavirus.
The reality of the true effects of the coronavirus on the U.S. and global economies have yet to be seen. The stock market is a forward-looking mechanism – so what does the market see? Most likely, the market is focusing primarily on two factors, unemployment and the GDP (gross domestic product). First, unemployment. The last report showed 6.64 million new jobless claims, and that report was for the period ended March 12. It is most likely that there is actually a greater number of American workers filing jobless claims after the 12th, so the next jobless claims number could be huge, and is expected to be huge. As for GDP, that, too, is expected to be bad with estimates range widely from -10% to -30%.
The questions most commonly asked now are how deep will this downturn go and how long will it last? Recovery will come, it is just a matter of time. That waiting can and is likely to be uncomfortable.
What, as investors, should we expect going forward? Notwithstanding days in the market like yesterday and most likely today, there is a bumpy (volatile) road ahead. How much volatility and how long it lasts is yet to be seen.
We have coordinated with Commonwealth’s Head of Fixed Income Research, as well as with Northern Trust, Guggenheim and BlackRock to tactically position our PPS managed portfolios for continued downside volatility while leaving enough “on the table” to participate in market rallies.
Please stay safe and healthy.