Art Hogan’s Market Commentary – April 6, 2020

Morning Commentary

Another wild week in markets last week as stocks were down across the world, with the Dow Jones Industrial Average shedding 2.7% over the week and 1.7% on Friday. The S&P 500 fell 2.1%, and the Nasdaq ended the week down 1.7%. Interest rates were also lower, with the U.S. 10-year Treasury note dropping to just 0.59%. The yield on the two-year note hit 0.21% — its lowest level since May 2, 2013. The U.S. dollar, meanwhile, continued to rise, gaining 2% this week. The greenback is now up more than 6% since the start of the year.



Following 113 straight months of job gains, the U.S. economy shed 701,000 jobs in March, providing a glimpse of things to come. The March nonfarm payrolls report came in worse than expected, even though it only captured the first half of the month, before layoffs intensified. We know the numbers are much higher given weekly jobless claims and filings for unemployment.

The unemployment rate increased to 4.4%; however, that is to be ignored since we know that the near real-time unemployment rate is most likely well above 10%, given the damage to the labor market in March. The U-6 underemployment rate jumped from 7% to 8.7%, which foreshadows what will clearly be a move in that aggregate well above 20% in the near term.

Perhaps the most important information in the report is the decline in overall hours worked, which points to a plunge in household spending in March and April. Aggregate hours worked declined 1.1% on the month, while total private hours worked declined 0.6% over that same period. Manufacturing hours worked declined 0.7%.

Wage gains on the month provide a perfect glimpse into a world that no longer exists. Wages always lag recoveries and recessions. Average hourly earnings increased by 0.4% on the month and 3.1% on a year-ago basis. Wages peaked in late 2019, and we expect a lagged easing in this data as the crisis evolves later this year.

The details of the report are in line with what one can visibly observe. The service sector shed 659,000 jobs, with the 459,000 decline in leisure and hospitality providing the majority of the losses. Trade and transport shed 49,000 jobs, while retail trade saw a loss of 46,000. Business services lost 52,000, education and health 76,000, goods producing 54,000 and construction 29,000. Government, information and the financial sector all saw modest gains.

We ended the week with Global Coronavirus cases surging past 1,280,000, with 337,000 of those here in the U.S. Keep track of the Covid-19 case count Here

This has certainly been a unique drop for the market, given its cause. The coronavirus pandemic is unlike anything investors have faced in modern times. The economy isn’t falling into a recession because of a financial crisis or a disruption to a key commodity or energy source. Instead, social-distancing measures are slamming the breaks on economic activity, as people stay home and businesses are required to close.

The transition from healthy economic scenarios to grim forecasts and record drops in output has never come so fast. At the same time, there’s reason to believe the reversion to the mean after this crisis will be faster than usual as well. If trillions of dollars of fiscal stimulus and rock-bottom interest rates can help the economy restart quickly from that deep freeze, the rebound might be stronger and the stock market could recover even faster over the coming year.

With the new fiscal policy in place, coupled with ultra-aggressive monetary policy at the Fed, investors will be better able to face the tsunami of negative news that awaits us on the short term horizon. The new case discovery in the US is exploding, doubling every three days, as we are just now getting around to testing people in large numbers. The thrust of the government policies is directed to ameliorating the economic and financial damage from the pandemic, the virus makes the timeline.

Unless and until we see the number of new case reports hit a peak, like they have in both China and South Korea, we are likely to stay in the roller-coaster like volatile market environment. We will get there and markets will recover.

All bear markets come to an end, eventually. It feels extreme now because it is. There is no easy way to quantify either the economic shutdown and what the eventual recovery is going to look like as the monetary and fiscal policy initiatives are as historic as the economic decline. The S&P 500 has already dropped nearly 34% in under a month suggesting the panic phase of selling could be nearly done based on the 14-week RSI. Such extreme oversold readings have tended to happen as the heaviest of the selling was largely behind us.


In the meantime, remember to take care of yourself and your families. We all need each other right now. Stay safe and follow CDC Guidelines for preventing Covid-19 spread CDC Guidelines Don’t panic, Rebalance; talk to your Financial Advisor; Stick to your Strategy; and if this type of market volatility has you up at night, Recalibrate your Equity Exposure to match your Risk Tolerance


Other News:

Therapeutic news – Gilead Sciences Inc. said it’s donating 1.5 million doses of its experimental anti- coronavirus drug Remdesivir, which could treat 140,000 patients. The drug will be offered for compassionate use, expanded access and clinical trials, and will treat patients with severe symptoms, Chairman and Chief Executive Officer Daniel O’Day said in an open letter. The company is also boosting its supply of Remdesivir to more than 500,000 treatment courses by October, and to more than 1 million by the end the year. Production time has also been accelerated to six months from one year, he said.


OPEC+ inching towards a deal – Oil pared losses amid signs that Saudi Arabia and Russia are making progress toward an agreement to curb crude output as the coronavirus wreaks havoc on the global economy. Futures fell 3.3% in New York, having earlier plunged 11%. Large oil-producing nations are racing to negotiate a deal to stem the price crash, but hurdles remain. A meeting of OPEC+ and others — already delayed once — is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but President Donald Trump has so far shown little willingness to do so.


iShield – Apple Inc. is designing face shields for medical workers and separately has sourced over 20 million masks through its global supply chain, Chief Executive Officer Tim Cook said. Cook made the announcement Sunday on Twitter, saying that its design, engineering, packaging and operations teams are working with suppliers to get the shield made and shipped. The first shipment was delivered to a Santa Clara, California, hospital last week. The shields are fully adjustable and assemble in under two minutes, he said, adding that Apple plans to ship over a million this week and another million weekly after that.


The Week Ahead

This week the focus will once again rest on the U.S. labor markets, and the weekly release of jobless claims data that has jumped by almost 10 million across the last two reports. The Federal Reserve and the European Central Bank are also both scheduled to release minutes which may include details of their thought process as they injected waves of emergency stimulus into the economy.

Monday – US Bank Stress Tests; and Earnings (SMPL before the open).

Tuesday – US JOLTs for February (10 am ET), US Consumer Credit for February (3 pm ET), and Earnings (ANGO and LNN earnings before the open and LEVI and SGH after the close)

Wednesday – FOMC Meeting Minutes (2 pm ET), Earnings before the open (MSM, RPM, and Tesco PLC before the open and PSMT after the close), and COST March sales (after the close).

Thursday – US PPI for March (8:30 am ET), US Weekly Jobless Claims (8:30 am ET), US Wholesale Inventories for February (10 am ET), US Michigan Confidence for April (10 am ET), and Earnings (WDFC after the close).

Friday – US CPI for March (8:30 am ET). Note that US markets will be closed Friday 4/10 for the Good Friday holiday.


Upcoming Catalysts:

US bank stress tests due to the Fed by Apr 6.

Wisconsin primary – Tues Apr 7.

FOMC meeting minutes (from the 3/18 meeting) – Wed Apr 8.

World Bank/IMF spring meetings – Apr 13-19 in Washington.

Q1 earnings – JPM kicks off the season on Tues 4/14.

GILD coronavirus drug (Remdesivir) trial results will be made public Apr 27 in China

Connecticut, Delaware, New York, Pennsylvania, Rhode Island primaries – Tues Apr 28.

FOMC meeting – Apr 29.

ECB meeting – Apr 30.

OPEC meeting – June 9-10.

G7 Leader’s Summit – June 10-12. Camp David.

Fed will publish bank stress test results by June 30.

ECB Forum on Central Banking – June 29-Jul 1 in Sintra, Portugal.

Fed will communicate its new monetary policy framework – first half of 2020.

Democratic Convention – starts Jul 13 in Wisconsin.

Republican Convention – starts Aug 24 in Charlotte.

Jackson Hole Conf. – likely to begin Thurs 8/27.

First US Presidential debate – Sept 29, 2020.

First (and only) VP debate – Oct 7, 2020.

Second US presidential debate – Oct 15, 2020.

Third US presidential debate – Oct 22, 2020.

US election – Tues Nov 3, 2020.

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