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Market Commentary for the week ending April 17th, 2020

Summary

  • Large U.S. stocks extend their rally from the March 23rd lows while small stocks decline.
  • Economic reports are showing the economic contracting unlike we've seen in decades.
  • Big banks reported quarterly results below expectations and down sharply from the previous quarter.

 

This Week's Performance Highlights

Market Indexes week ending April 17

Source: www.YCharts.com

  • Large U.S. stocks added to their huge gains from the prior week with the S&P 500 gaining another +3.0%. The Dow Jones Industrials lagged behind but still were higher by +2.2% while the NASDAQ surged +6.1% and is now down just -3.6% for the year.
  • The nation’s biggest banks kicked off earnings season with numbers generally down sharply. J.P. Morgan (JPM), Wells Fargo (WFC), and Bank of America (BAC) all missed Wall Street’s estimates and set aside billions of dollars in additional loan loss reserves due to the business disruptions of the coronavirus.
  • Small U.S. stocks moved in the opposite direction losing -1.3% as investor perceive these companies being at greater risk to an economic slowdown.
  • International developed markets edged slightly higher on average gaining +0.3% for the week with Australian stocks outpacing others for a third consecutive week while markets in countries such as Italy and Spain lagged behind.
  • Emerging markets did well gaining +2.6% for the week helped by the largest of the emerging markets, China and Hong Kong, both up +1.4% and +2.3% respectively.
  • Real estate stocks have been and continue to be extremely volatile as investors try to determine exactly how these companies are going to be impacted by the Coronavirus both short-term and long-term. This week they suffered losses of -4.7% but this follows the previous week’s +24.1% gain. The stocks suffering the most this week included those exposed to retailers such as Simon Property Group (SPG) and Kimco Realty (KIM) falling -17.7% and -17.6% respectively. Kimco’s stock is back to levels first crossed 25 years ago!
  • Gold lost a fraction of a percent, down -0.1%, as investors generally continue to hold onto this safe-haven investment.
  • Commodities fell once again as oil prices fell to 18-year lows as supplies swell and demand drops.
  • Bonds inched up in price fractionally leaving yields little changed for the week. The 10-Year U.S. Treasury yield is hovering near multi-year lows closing at 0.643%.

Economic Indicators

Economic reports are starting to come in giving us a glimpse of the coronavirus impact. Retails sales experienced their biggest decline ever of -8.7% (the government began tracking sales in 1992). This came as little surprise and is expected to get worse as the full shelter-in-place orders were not in effect for the entire month. Some of the biggest drops were in auto sales down -27%, gas stations off -17%, clothing stores collapsing -50%, and restaurants dropping -27%. Grocery stores were winners with sales jumping +27% and internet retails up +3.1%.

Industrial production, a measure of manufacturing, mining, and utilities, fell a more than expected -5.4% which was the biggest decline since 1946. Again, it was not until late March that many factories began shutting down so the April number will likely be worse.

Housing Starts fell from 1.564 million annually the month before to 1.216 million in March. This is the worst decline in nearly 40 years. This industry has been deemed an essential business and remains open but builder sentiment has plunged and some materials generally supplied from overseas have been difficult to acquire.

Upcoming Economic Reports

  • Existing Home Sales
  • New Home Sales
  • Durable Goods Orders
  • Consumer Sentiment

Contact Mark A. Patton :