Markets moved higher last week squarely in the face of the world’s largest negative shock since the Great Depression. Narratives of flattening curves, new data, potential treatments, and discussions on re-opening economies have investors looking beyond the shutdown in a tentative return to normalcy scenarios. Large caps and growth-oriented names, which have a more pronounced influence on headline indices, pushed U.S. equities higher on the week. Oil prices struggled mightily on both supply and demand pressures, U.S. rates moved lower across the curve, and the USD moved higher but was mixed against the majors.

Market Anecdotes

  • There hasn’t been much to dislike about the rally we’ve seen over the past two weeks with the S&P +30% over 15 trading days – one of the strongest rallies in nearly 90 years.
  • 1Q earnings season kicked off last week as one of the most significant unknowns. Consensus 2020 earnings are $142 and $174 in 2021 – both likely to drop from there.
  • The evolution of CoVid-19-19 developments will likely remain more important than the dire economic numbers materializing now. Rapid PCR tests (Abbott Labs), serology testing (Cellex, Stanford Santa Clara county, Iceland), treatment therapies (Gilead), and curve flattening are all key factors in slowing the CoVid19 roll.
  • China gave us a first glimpse of full quarter CoVid-19 impacted data with a Q1 GDP of -33.8% annualized (- 9.8% Q/Q) – numbers that look dire even relative to ‘08/’09.
  • The IMF reported a baseline scenario seeing the global economy contracting by 3% in 2020 with developed markets at -6.1%, significantly deeper than ‘08/’09 of -0.1%.
  • As unprecedented as the economic and job loss catastrophe is, so too are the unprecedented fiscal and monetary responses. CARES Act details last week show $1.6t of tax cuts and spending hitting the U.S. economy by 9/30/20 (7.9% of GDP) while Fed programs and market activity of $2.2t (10% of GDP) hits as well.
  • With three bipartisan packages done, the fourth is hitting snags. PPP funds were exhausted last week with talks continuing on a compromise stimulus v3.5 for additional small business PPP funding.
  • Very important new aspects of the PMCCF and SMCCF were the inclusion and implementation details of IG and HY bonds, including ETFs such as LQD/HYG/JNK. This sent them soaring and sparked record junk bond fund inflows of $10.5b over the week.
  • Oil markets fell further reacting to the global CoVid-19 demand shock and oversupply concerns. That said, Brent and WTI forward curves see prices rising 42% and 79% over the next 12 months as activity begins to normalize.

Economic Release Highlights

  • Weekly jobless claims came in at 5.245 million which was below consensus forecasts for 5.5 million but still the third-highest reading on record.
  • March C&I loans had the largest M/M percentage increase in history, +9.63% as liquidity became priority #1.
  • Housing Starts and Building Permits were mixed relative to expectations as Starts missed forecasts (1.216 million vs 1.3 million) while permits topped expectations (1.353 million vs 1.296 million).
  • The US retail sales for March completely cratered by a record -8.7% month over month, as most Americans were under lockdown.
  • U.S. industrial production fell 5.5% YoY with a three-month annualized decline of -20%, activity on par with numbers last seen in the Great Depression.