Market Update
Markets Record Best Month in april Since 1987 as States Begin to Reopen Despite a flurry of Negative Economic Data
18 states announced that they would reopen on May 1st. This gave hope to markets and helped push the markets to record their best monthly gain since 1987
Data including weak manufacturing, massive jobless claims, declining imports and exports, GDP contraction and a drop in personal spending and consumer sentiment
Jobless claims came in at 3.8 million for the week ending April 25th, one silver lining was that it was below expectations by over 600,000 and the most recent 4-week trend appears to be improving
The Fed unanimously voted to keep the Fed Funds rate target at 0.00-0.25% and hinted that rates might stay there for a while
Of the 11 S&P 500 sectors, six closed higher and five closed the week lower - The Energy sector was the best performer, gaining almost 3% and the Utilities sector was the worst performer, losing over 4%
Volatility increased last week with the VIX - the volatility index - coming to rest at about 37, after hitting 30 on Wednesday.
U.S. Treasuries stayed stable last week, as the 2-year yield ended the week at 0.20% and the 10-year came in at 0.62%
The U.S. Dollar Index declined 1.3%
Best Monthly Performance Since 1987
In April, S&P 500 put up the best monthly performance since 1987.
In fact, according to Factset:
The DJIA is up 28% from its March 23rd low;
The S&P 500 is up 27% from its low; and
NASDAQ is up 26% from its low.
The stock market generally looks forward and the mood was generally more positive as new COVID-19 cases appear to be slowing and the worst might be behind us as local and state economies begin to reopen for business. As economies around the nation and around the world begin to reopen, volatility is likely to remain elevated.
Manufacturing and Exports Plunge
The ISM Manufacturing index for April came in at 41.5%, which was the lowest level since April 2009. The data showed a significant increase for supplier deliveries, but it is due to supply chain disruptions and is not a positive sign.
Further, while the index for inventories increased too, that was due to weak demand resulting in inventories staying in warehouses longer, another not-so-happy sign. U.S. exports fell 6.7% in March compared to February and U.S. imports were down 2.4%. The largest contributor to the lower export number was automobiles (due to COVID19 shutdowns), as auto exports were down a whopping 17.8%. Consumer goods and capital goods were down 5% and 4.3%, respectively.
Consumer Confidence Craters
Consumer confidence cratered as the Conference Board Consumer Confidence Index fell precipitously in April, following a sharp decline in March. The Index now stands at 86.9, down from 118.8 in March.
Further, the Conference Board reported that:
The Present Situation Index – based on consumers’ assessment of current business and labor market conditions declined considerably, from 166.7 to 76.4 – the largest drop on record.
The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – improved from 86.8 in March to 93.8 this month.
Gross Domestic Product Down
The Bureau of Economic Analysis reported that real gross domestic product decreased at an annual rate of 4.8% in the first quarter of 2020 whereas real GDP increased 2.1% in the 4th quarter of 2019.
The BEA pointed out that their data was incomplete and “subject to further revision” and indicated that another GDP number, based on more complete data, will be released on May 28th.
The BEA further reported that:
Personal income fell 2%
Real consumer spending fell 7.6%
Non-residential investment fell 8.6%
Jobless Claims May Be Getting Better?
Jobless claims rose 3.8 million through April 25th and while the number is massive, it still represents the fourth straight weekly decline from the peak of 6.8 million jobless claims in late March.
From the beginning of the crisis in mid-March, jobless claims are now over 30 million, a staggering percentage given the total labor force is about 163 million.
Earnings, Earnings, Earnings
As of Friday, more than half of the companies in the S&P 500 have reported earnings results for the first quarter of 2020. From FactSet’s release dated May 1st:
Looking at future quarters, analysts predict a (year-over-year) decline in earnings in the second quarter (-36.7%), third quarter (-20.1%), and fourth quarter (-9.4%) of 2020.
This week marked the first time the S&P 500 recorded a forward 12-month P/E ratio of 20.0 or higher since April of 2002. The forward 12-month P/E ratio is 20.3, which is above the five-year average and above the 10- year average.
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Until next month.
Regards
Salim A Nathani