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Promising Stock Market with a Suffering Economy

April 20, 2020
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Monday Morning QB - Market Observations:

  • S&P 500 Rallies 3% for the Week
  • Retail Sales Plummet
  • Jobless Claims Surge for the Fourth Week in a Row
  • Industrial Output Tanks
  • Big Banks Miss Earnings…Concern Over Loan Losses & Potential Defaults
  • Big Earnings Week Ahead…As 87 S&P 500 Companies Report

Monday Morning QB - Market Performance:

The major indexes recorded mixed returns, as investors weighed record downturns in economic data against hope that progress in containing the coronavirus might soon result in a partial reopening of the economy.

The technology-heavy NASDAQ Composite outperformed by a wide margin, as did growth stocks relative to value shares. The NASDAQ gained 6.1% last week, while the Dow Jones Industrial Average rose 2.2%.

By market cap, the large-cap S&P 500 rose 3.0%, but the mid-cap S&P 400 and small-cap Russell 2000 finished down -1.6% and -1.4%, respectively.

A Tale of the Tape – Two Violent Moves Define March and April

March Madness - 

The downside in March, for the stock market, was swift and scary. As the virus and the news spread, we all worried about the dire outcomes awaiting our society and, more importantly, the potential adverse effect on our families.

As warnings turned real from the reporting of infected and dead, the toll on families and our economy started to sink in. For me, one of the hardest things I have seen on the news is the long drive up lines at food centers-- not to make donations but to pick up food for their families.

When I think of people starving, never in my limited mind did I think that would include families with cars. The homeless feedings from my church parking lot have never included drive-up service.

Our homeless include those in many unfortunate situations. I can remember having a conversation with one gentleman who got laid off from his job and found himself killing time with drugs. He blamed only himself.

Through no fault of their own, bumper to bumper car lines trying to feed their families is just something I cannot comprehend in America. Our poor and destitute now include people from the middle class.

April Gladness - 

The rise in the stock market so far in April has left many investors scratching their heads.

A 15% return for the S&P 500 over the last two weeks is remarkable.The return of a bull market in less than a month is unimaginable through the lens of past economic collapses.

An unprecedented decline required our Federal Reserve and the Government to throw everything, including the kitchen sink, at the problem.

The Federal Reserve responded by taking never seen before steps to ensure liquidity continues to flow through our economy. While at the same time, President Trump and Congress launched the most significant government stimulus package ever seen.

The stock market remembers how the Federal Reserve created the rebound during the Great Recession, and what was missing was an adequate bi-partisan stimulus package. This time around, we got both!

The stock market has appreciated the herculean effort.

A Forward-Looking Stock Market Sees Signs of Hope

Last week the stock market picked up on two key themes moving forward.

First, the potential for states to begin to reopen in some capacity was hinted at. None of us like to hear the death tolls from the corona virus, nor do we want to see families struggling to feed themselves.

I am glad that I do not have to square these two points.

We should all take a step back from the finger-pointing and hope for the best. Hungry people, as well as sick people, don’t care about politics; they just want their situation to improve.

The second piece of hope was the apparent slowing of the disease itself, based on reported statistics. Let’s pray that the coronavirus statistics continue to improve. This disease has taken enough already!

A slowing spread of death and disease along with some semblance of life before COVID-19 are welcome signs, and the stock market is right to celebrate.

An Economy in Peril

The economic data that came out last week was mind-boggling. Last week, I turned 50, and every economic data point released was worse than at any time since I was born.

Let’s start with jobless claims. Another 5.2 million people filed for unemployment, bringing the total of unemployed to 22 million. That puts the unemployed to about 13% of the workforce. The only unemployment figure that was worse was the 25% of unemployed Americans during the Great Depression.

Industrial production declined at a rate not seen in more than 70 years, falling 5.4% in March. This was the biggest monthly decline since 1946.

Manufacturing output, the largest component of industrial production, declined 6.3% from last month-- also a drop not seen since the end of WW II.

Retail sales slumped 8.7% from last month. Sales at clothing stores plunged more than 50%. The one bright spot, largely thank you to toilet paper hoarding- grocery store sales surged.

So What's Next?

Everyone's favorite question, of course, no one has an answer to. "What do we do next?"

When it is difficult to make sense of it all, it’s challenging to know what to do next.

Sometimes, Goldilocks investing is okay. Not “all the way in” or “all the way out.”

Unless, of course, you are willing to buy now and ride it out no matter how long it takes.

Stay safe!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)
Hayden Royal is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The information presented in the material is general in nature and is not designed to address your investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from a professional regarding whether any particular transaction is relevant or appropriate to your individual circumstances. This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situation are made.
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An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.