A holiday shortened week paid handsome dividends for equity investors who maintained the course as the S&P 500 posted its best weekly return since 1974. Signs of cautious optimism with regard to Covid-19, continued globally unprecedented fiscal and monetary responses, and talk of oil output cuts provided the backdrop for a double digit equity market rally, a parallel move higher in yields, and a slight decline in the USD.
Market Anecdotes
- In a clear sign the market is still searching, the DJIA finished up 7.73% on Monday (19th best ever) followed by an intraday reversal to the extent only seen one other time (October 14, 2008).
- Technical conditions make the case that we are short-term overbought but the persistent surge in momentum is rare in most ‘bear market rallies.’
- Money supply (M2) now growing 12.2% YoY, a pace not seen in over 20 years and total money market fund assets hit an all-time high of $4.221t last week.
- The Fed announced details on the $455bn CARES Act funding which translates to approximately $2.3t in support and loans to households, businesses, and state/local governments.
- More PPP capital is on the table with the R’s seeking an additional $250b while the D’s look for provisions protecting less sophisticated businesses and extra funding for hospitals, local governments, and SNAP. No deal yet but negotiations will continue this week.
- Abe announced a￥108T relief package on Monday (19.5% of GDP).
- Chinese policy makers have pushed required reserves below 10% and cut interest on excess reserves from 0.72% to 0.35%.
- U.S. fiscal stimulus (“Phase 4”) package negotiations continued last week with infrastructure spend and state/local government as the focus.
- A tentative deal on oil production cuts ended with a Saudi-Mexican dispute and a failed G20 effort for broader international cooperation. POTUS back channels over the weekend worked to spark a RussianOPEC-WOPEC deal resulting in 9.7mbpd of production cuts.
- Covid-19 developments remain fast moving with cautious optimism slowly emerging. Germany will be launching Europe’s first large scale antibody test program and the U.S. is expected to follow suit in the coming weeks.
- Watching China’s economic ‘re-entry’ may carry lessons for western economies who are behind their cycle. Business conditions and PMIs are improving but pace and duration remain unknown.
Economic Release Highlights
- Initial weekly jobless claims of 6.6mm brings job losses to over 16mm.
- March UofM consumer sentiment reading of 71 was the largest M/M decline (-20.3%) on record, driven by a 30%+ drop in economic conditions.
- Mortgage applications fell 17.9%, reflecting broad uncertainty around future mortgage rates and housing prices.
