Sorry this note is a day late: The Bear was part of a rising National Statistic last week. Monday (our usual publication day) was chaotic!
Market indices rebounded strongly last week, anticipating miraculous things from the Fed's $2.3 trillion infusion into the economy. Along the way they seem to have shrugged off a ~7 million person increase in unemployment rolls. Small Cap stocks led the way - posting an 18% week over week gain. Small Caps (publicly traded companies with market capital between ~$300 Million and ~$2 Billion) have been one of the hardest hit segments of the market both year-to-date and during the recent Corona-Chaos. Several other beaten-down market sectors (real estate, materials, and financials) climbed aboard for the uptick. Technologies were relatively subdued.
The "flight to safety" continued as nearly $62 billion moved from equity funds to "safer" instruments. This move into extremely low yield investments has us a little baffled. Bond principal moves counter to Bond Yield. If interest rates go up (which is really the only way they can go right now) then investors lose principal. Hence - the "move to safely" is more a move from a volatile and unpredictable equity market into almost guaranteed losses. Such is the state of play in equity markets that are still 3X as volatile as normal.
The Fed Stimulus program got off to a rocky start: banks clearly had no clue how to implement either of the two major loan programs (PPP=Paycheck Protection Program, and EIDL=Economic Injury Disaster Loans) and SBA-Fed guidance was thin on the ground. The consternation within the advisory community was palpable. The turf became a bit smoother as the week wore on, but coverage and explanation gaps still persist.
For information on the SBA Programs: https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf
For Applications: https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf
Treasury and the IRS seem to have had their act together, though. The $1,200 stimulus checks promised by the CARES Act started arriving electronically as early as today. Return Filers who used automatic deposit/debit in 2018 or 2019 are already seeing their check (with some confusion over how much they get). The Service has also created a "Portal" to allow non-filers and those who didn't use electronic deposit/debit to expedite electronic payments. The non-filer portion of the portal is already functional. The other side of the portal is slated to begin operations "in mid-April" -- which we translate as "some day real soon." This part of the stimulous package has gone very smoothly so far: Good Job IRS Folks!
To connect to the IRS Portal: https://www.irs.gov/coronavirus/economic-impact-payments
Back in the real economy, we received the third monumentally grim weekly employment report, but Russia and Saudi Arabia seem to have reached an accord on oil production quotas. Don't expect an immediate bounce in crude prices - we are currently up to our collective eyeballs in excess inventory.
This week commences "earnings season" for Q1-2020 and projection season for Q2-2020. We expect both to be rather grim. Don't be surprised if earnings and forward guidance both reflect declines of 10%-15% from previous estimates. Late in the week (Thursday) China releases their GDP figures - an event that is always amusing, but rarely informative.
CYOA: This is not a recommendation or suggestion to buy or sell any security. Speak to your investment advisor for suggestions tailored to your risk preferences and objectives. Steven Roy Management is affiliated with Cambyses Financial Advisors, LLC, A registered Investment Advisor.