Market Strategy 4/20/2020
- April 20, 2020
Gimme Shelter
The US tries to find a balance between “Gimme Shelter” and “Gimme economic growth”
Key Takeaways
- Investors this week will continue to focus on the results of the Q1 earnings season for the S&P 500. Last week’s mixed results showed evidence of both strengths and weaknesses among companies that reported.
- Last week’s rally in the S&P 500 stemmed from progress in the battle to counteract Covid-19 on signs that new infections are slowing in the US.
- Economic data will be of increased focus as last week’s indicators began to reflect the effects of the shutdown of the US economy.
- This week 88 companies in the S&P 500 are scheduled to report; we provide a first glance of our earnings score card for the season.
In the US the pandemic has sickened nearly 750,000 people and more than 36,000 have lost their lives to it.
The country has seen record levels of employment turn into tens of millions of people out of work. Monetary policy, fiscal stimulus and financial rescue programs have been deployed at a level of historically unprecedented scale.
A significant part of the largest economy in the world has been shuttered in an effort to stem the spread of the Covid-19 virus.
The bad news is that a broad shutdown of businesses and activities considered not essential by officials along with the effects of hallmark regimes coined “shelter in place” and “social distancing” in order to arrest the pandemic have stressed the citizenry emotionally and positioned the US economy for its first recession in nearly 11 years.
The good news is that the effects of social distancing and sheltering in place along with a broadly shuttered economy are showing that these herculean efforts and personal sacrifices that have brought such disruption and expense may prove worth it in saving lives and stemming the spread of the insidious Covid-19.
Over the weekend the Governor of New York noted a sharp drop in the number of deaths in the state and a slowing in the virus’ pace in spreading based on recorded new cases even as testing becomes more available.
For now we’ll keep the party hats in the box, persist in seeking babies thrown out with the bath water and keep a steady eye on the tape for news of progress…
Considering that New York is the epicenter of the Covid 19 virus outbreak in the US this is good news not only for New Yorkers but for other states experiencing the viral outbreak. Notwithstanding the governor’s message cautioning New Yorkers to practice humility and avoid arrogance before jumping to positive projections of where and how soon things might return to “normal” genuine progress appears to have been made.
While the news on the front for the search for a vaccine or a treatment of greater efficacy for those already suffering from the virus is not as immediate, news crossing the proverbial transom has appeared to be growing more positive as a myriad of scientists from both corporate and academic spheres address the challenge armed with highly sophisticated, state of the art technology.
The tone of the equity market has improved even as the effects of the shutdown become evident in the latest economic data and the results of Q1 earnings season for the S&P 500.
While market volatility as gauged by the VIX index has dropped nearly 54% from its high of 82.69 on March 16th at 38.15 at market close on Friday it remains high compared to its 12-month average level of 20.55 and considerably higher than its average of 15.43 in calendar year 2019.
The S&P 500 has closed higher for the week in eight of the last 16 weeks since the start of the year. As of last Friday the S&P 500 was off 11% on a year to date basis after having lost as much as 30.75% from the start of the year to a nasty low on March 23rd when traders and investors panicked and projected darkly the outcome of the Covid 19 pandemic.
Since that time a mix of improved news on progress in stemming the spread of the virus as well as the deployment of a gargantuan rescue program, heroic action by the Fed and an unprecedented flood of stimulus have allowed cooler heads to prevail. Rallies have developed across sectors, other major stateside indices as well as in a solid sampling of foreign equity benchmarks.
Technology and tech-related stocks have been so favored of late that the Nasdaq Composite (comprised of over 40% tech weighted and tech related companies) as of last Friday was off just 3.59% from the start of the year after having dropped some 23.54% from the start of the year through March 23rd.
Will wonders never cease? Such is the discount mechanism of equities in pricing the future. If only it were so easy to eradicate Covid-19. With that in mind we would caution investors that as far as we have come there remains considerable distance to travel before the light at the end of the tunnel is in our possession.
For now we’ll keep the party hats in the box, persist in seeking babies thrown out with the bath water and keep a steady eye on the tape for news of progress or reversals along the timeline of Q1 earnings season, the implementation of unprecedented levels of stimulus, rescue packages and monetary policy stateside as well as on similar efforts in the international realm.
From the perspective of health and politics the risk of reopening the economy too soon appears to have ebbed somewhat over the weekend. That said we’ll keep a watchful eye on the political scene in a US Presidential election year that has implications for the health of the economy and the markets as well.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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