March 26, 2020

Bill Hastie |

Good morning,


Yesterday’s gains in the Dow made for the first two-day winning streak since February.  In a very volatile day of trading, the Dow ended up 495.64 points, or gaining 2.39%; the S&P 500 up 28.23 points, or gaining 1.15% and the NASDAQ dropped 33.56 points, or a decline of 0.45%.  Most disappointing is that the Dow was up more than 1,200 points late in the trading session before news that the economic stimulus bill may stall again in the Senate.

Late last night, however, in a unanimous 96 – 0 vote, the Senate passed a massive $2T+ stimulus bill meant to curb decline while the effects of the Coronavirus are felt throughout the U.S. economy.  The bill now goes to the House for final approval by Friday, and goes to the President’s desk for signature (which he has already vowed to do) on Saturday.

The U.S. stock market is known as a leading indicator of what is expected in the future – namely corporate earnings and valuations, and economic activity. Just this morning, prior to the release of initial jobless claims, Dow futures were down more than 450 points on the expectation of as many as 4M new claims.  When the actual figure was released (just before 6am PDT) at 3.28M jobless claims, the Dow futures climbed back to positive territory.

This is all to say that going forward, the markets will largely be driven by expectations of the economy.  Perhaps the most watched will be the GDP – gross domestic product – the growth (or lack thereof) of the economy.  So what is reasonable to expect?  In our view, 1st quarter (ending next Tuesday) GDP may come in around flat.  The much bigger question is 2nd quarter GDP… estimates are being floated from -10% to as much -30%.

So are we headed to a recession?  Most likely we are, but it will be a “technical recession” – one not caused by a downturn in the economy but rather by some outside event.  Enter the Coronavirus.

Where are we now? The Federal Reserve (the Fed) acted very quickly in providing massive liquidity to the economy – called monetary policy.  The Legislative branch provided the much needed fiscal policy support by passing the stimulus relief bill which is likely to provide rapid and substantial financial assistance to the American worker.  There looks to be a three-week lag between final approval of the bill – probably this Saturday – and financial aid being received.

The final step is getting a treatment and eventually a vaccine for the Coronavirus.  A few medications, and combinations of medications, are already showing good results.  We hope and pray that a treatment will come very soon and stem the rapid growth of the virus.

Be safe and healthy during this difficult time.