Weekly Market Summary - 04/27/2020


Here is a simple-short summary of last week's financial results: They stunk!

It wasn't quite as bad as it could have been - But if that isn't "damning with faint praise" I don't know what counts.

Both equities and government bonds retreated; the dollar and gold both rallied. This, seemingly weird, juxtaposition is understandable if you consider that everyone else's (non-US) economies are sinking even faster than the US economy... all things are relative, right? There really weren't any equity safe harbors - 9 of 11 S&P sectors ended the week down.

Q1 Earnings reports started to come in: though no one seems to be reacting to them. We all knew they'd be ugly, and they are. With 25% of listed companies reporting so far, average earnings were down 15.8% (the biggest year over year fall since the great recession). Another 35% of companies, including tech sector heavy-hitters report this week. We expect the results to be similar. The market has pretty much shrugged off this real-time bad-news, but seems to be react strongly to even the most wildly speculative forward guidance. We'll get plenty of opportunities to test this hypothesis this week.

In the real economy. 4.4 million people filed first time unemployment claims - bringing the total to somewhere north of 26 million for the last 4 weeks. The new claims both reflect and contribute to precipitous declines in almost every manufacturing, sales, or retail index. Durable goods orders fell a stunning 14+% month-over-month; We suppose that's what happens when you completely shut down about one in seven businesses across an entire economy and curtail the rest of them... but it's still disconcerting. Besides that, who knows how many of those businesses will reopen when/if they can. (NB: the decline was led by automobile, aircraft, and other vehicle manufacturing. Leaving out those figures, the decline was much less dramatic.)

Then, there is the ongoing saga in oil markets. The poster child for excess volatility out did itself last week - the trading range covered a nearly $60/bbl spread: from the mid twenties to negative 37... Yup, you read that correctly. At mid-week oil traded in negative territory for about 48 hours on some markets. The instant geniuses who pop up around events like this had a field day, postulating that producers were paying to have the stuff hauled away. The truth however was much more mundane: the negative trades resulted from expiring futures contracts, and traders trying to get the hideous things out of their portfolio while salvaging a bit of their dignity.

Which is not to say, by the way, that the industry isn't in bad shape: A confluence of oversupply, contracted demand, excessive leverage, and speculation, now joined by a shortage of storage space dictates a big raspberry for the industry's mid-term prospects. A shakeout is probably about due. Treasury has proposed a "stimulus package" that consists almost entirely of lending facilities. In our opinion that is like throwing gasoline to a burning person - but...

The fiscal stimulus package is well underway -- and more efficient than we speculated (feared). The PPP EIDL loan programs "sold-out" in just thirteen days. An additional tranche of offers is in progress - signed into law late last week. The Fed has distributed about $2.8 trillion in the last three weeks. There have been irritating website glitches and processing delays; but, the program has operated about as smoothly as we could expect - Treasury, at least, has done a good job of following its mandated program despite poorly explained legislation and lack of guidance from leadership. That information gap, which extends to citizen users in the system, is the only major complaint we have.

This week will fill in some important data-gaps. The Fed and the EU Central Banks meet, preliminary US GDP figures and China manufacturing reports issue. This will provide a nearly complete picture of the Q1-Carnage and anticipate what comes next. One notable feature of the rumors coming out of the institutions: EU sources predict Q2-2020 global economic shrinkage of 15%; Several credible US Administration sources predict in the 20-30% range. I'm rooting for the Europeans to be right on this one!

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