What a difference a week can make!
Global equity markets staged a huge rally last week off multi- year lows on the back of Central banks adding a huge amount of liquidity into the system and governments mounting massive fiscal stimulus programs to rescue coronavirus affected economies.
The Wall Street Journal proclaimed “A new bull market has begun. The Dow has rallied more than 20% since hitting a low three days ago, ending the shortest bear market ever." - They may regret that pronouncement.
Still stocks fell sharply on Friday, giving back some of the strong gains experienced in the previous three days to cap off another volatile week on Wall Street. Sentiment took a hit as investors focused back on the coronavirus outbreak as the U.S. became the country with the most confirmed cases.
The Dow Jones Industrial Average dropped 915.39 points, or 4.1%, to 21,636.78. The S&P 500 slid 3.4% to 2,541.47 while the Nasdaq Composite closed 3.7% lower at 7,502.38.
Boeing dropped 10.3% to lead the Dow lower. Chevron and Disney each fell more than 8%. Boeing fell after Treasury Secretary Steven Mnuchin said the airplane maker won’t seek a government bailout. Energy and tech were the worst-performing sectors in the S&P 500 as they dropped 6.9% and 4.6%, respectively. Energy was pressured by a 4.8% drop in crude prices.
That said the main U.S. indices posted strong gains for the week- a mirror image of the week before. The Dow rose 12.8% its biggest one-week gain since 1938. The S&P 500 gained 10.3% this week for its best weekly performance since March 2009. The Nasdaq also had its biggest weekly gain in 11 years, rising 9.1%. That U.S. legislators agreed to and passed a $2 trillion stimulus package certainly helped market sentiment during the week. The legislation, which President Trump signed Friday, is the largest economic-relief package in U.S. history and would extend aid to many Americans through direct payments and expanded unemployment insurance.
Interestingly corporate insiders are buying stock in their own companies at a pace not seen in years, a clear sign they are betting on a rebound after the coronavirus-induced rout.
More than 2,800 executives and directors have purchased nearly $1.19 billion in company stock since the beginning of March. That’s the third-highest level on both an individual and dollar basis since 1988.
There is some hope ahead
Swiss pharma giant Novartis CEO Vas Narasimhan said his Sandoz generics unit's malaria, lupus and arthritis drug hydroxychloroquine is the company's biggest hope against the coronavirus. He was quoted in the Swiss newspaper SonntagsZeitung on Sunday.
Novartis has pledged to donate 130 million doses and is supporting clinical trials needed before the medicine, which U.S. President Donald Trump also has been promoting, can be approved for use against the coronavirus.
"Pre-clinical studies in animals as well as the first data from clinical studies show that hydroxychloroquine kills the coronavirus,"
Narasimhan told the newspaper. "We're working with Swiss hospitals on possible treatment protocols for the clinical use of the drug, but it's too early to say anything definitively." Let’s hope.
Daily returns local currency middle columns: 5 Day returns far right
A strong AUD blunts the rally in most global equity markets but overseas investors are outperforming the ASX 200 by a significant amount last week.
Asian Markets. Daily return middle columns. 5 day return far right
Strong AUD not helping for Asia market returns. Japan equity markets had a big move during the week perhaps reflecting on Japan’s handling of coronavirus. (1,400 confirmed cases and 44 deaths as of March 27.)
Other Market Data: Friday’s Close
- AUD .6160 -0.0008, Up 6.5% on the week
- Crude Oil futures dropped 5.78% to $21.84 per barrel.
- Gold futures moved higher by 0.88% to $1,654 per ounce.
- The US 10-year Treasury yield moved lower to 0.75%.
The Scorecard: The week, since Feb 19 (the peak) and YTD in USD
A sobering look at markets and other asset classes. Bonds rule. Note NASDAQ 100 outperformance.
Let's put this week’s 18% market rally into perspective: S&P 500 bounced by 9%-19% six times between Sep and Dec. 2008, Goldman highlights. That is what a “bottoming” process looks like.
S&P 500 Last Two weeks
Hopefully this type of volatility subsides as market undergoes that “bottoming” process.
Energy stocks vs. S&P 500 at 1933 levels!
Only for the brave. Exxon Mobil has almost a 10% yield
Important Economic Data: The Week Ahead
Obviously, jobs will be a major focus in the week ahead as the U.S. economy reels from the impact of the pandemic. The ADP employment report and weekly initial jobless claims report are due out before the March jobs report drops on April 4.
The March jobs report is expected to only show a loss of about 300K jobs as the real damage doesn't arrive until April and May.
Wednesday April 1: China’s official manufacturing index for March is expected to show factory activity has recovered notably amid the government’s strong push for work resumption. That’s a positive.
Thursday April 2: The Bank of Japan’s quarterly Tankan corporate sentiment survey likely will show the impact of the pandemic even as disruptions in the country have been far less severe than in nearby China and South Korea. Japan seem to be handling this thing very well.
In the U.S. The Institute for Supply Management’s (ISM) March manufacturing survey will give an early indication of how supply-chain disruptions and business closures are affecting factory activity. Also, ISM’s release caps a full day of purchasing manager indexes from across Asia and Europe, offering some of the most timely data on the pandemic’s global economic fallout.
Friday April 3: Millions more Americans are expected to have claimed unemployment insurance benefits in the latest weekly report. Will be a big number like last week (3.4 million).
Saturday April 4: The U.S. employment report for March is expected to capture only part of the job losses that began to mount toward the end of the month. Even so, it is expected to mark the first time since 2010 that employers actually shed more workers than they added.
The ISM’s March non-manufacturing survey is likely to reflect the impact of canceled travel plans, closed businesses, stay-at-home orders and social distancing on U.S. service providers. No surprise there.
It will be interesting how markets will react to negative economic numbers for a change. That much of it is “already in the price” may soften the blow.
A Hopeful chart of the day
Growth rate in daily new cases in most of the hardest-hit countries is starting to slow via the FT
Note: The trajectory for U.S. is harder to interpret due to the #coronavirus testing backlog.
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