April Market Recap
May 1, 2020
The laws of gravity dictate that what goes up must come down. Isaac Newton discovered no such law applicable to financial markets, but history has proven the inverse does indeed apply to equities. When it comes to the major US benchmarks, at least, what goes down will inevitably come back up.
Exceptionally oversold conditions in late March and what seems a never-ending supply of stimulus ignited a historic rebound rally in April. Although the COVID-19 pandemic remains far from over, the S&P 500 (+12.7%) and Dow Jones Industrial Average (+11.1%) notched their largest monthly gains in 33 years. It was the S&P’s third-best month since World War II. The NASDAQ’s 15.5% bounce was its biggest since June 2000.
From the March 23 lows through the end of April, the S&P has risen 33%. In five weeks. It remains uncertain whether this snapback in stock prices is sustainable or instead proves to be a bear market rally. For now, at least, it infused investors and portfolios desperate for gains after the sharp declines in prior months.
All 11 sectors in the S&P 500 moved higher in April with six of those gaining 12% or more. Energy (+29.8%) led the way for a change, though it remains the worst-performing sector so far in 2020. Consumer Discretionary (+20.6%) also generated strong returns. Typically-defensive sectors like Utilities (+3.2%) and Consumer Staples (+6.9%) rose the least.
|Index||April 2020||YTD 2020|
April gains reached the lofty numbers above despite starting the month with a thud. The Dow fell 974 points on April 1. The next day gave us an almost unbelievable 6.7 million weekly jobless claims. Combined with the prior week, it meant at least 10 million Americans lost their jobs in two weeks, roughly equivalent to the total number of claims filed in the first six-and-a-half months of the 2007-09 recession.
An hour into trading on April 2, the Dow was actually 350 points higher, an indication of just how much bad news was already priced into equity markets. By the end of April, a staggering 30 million Americans had filed unemployment claims according to the US Department of Labor.
The latest medical reports show roughly 1.1 million Americans have been infected with coronavirus and at least 64,000 have died. The number of daily reported deaths nationally seems to have plateaued but not decreased. Shelter-in-place mandates and other lifestyle changes have successfully “flattened the curve,” in other words, but the evidence does not suggest an end to this pandemic is coming anytime soon.
First-quarter GDP numbers were even worse than consensus expectations. The US economy contracted 4.8% from a year earlier. It was the first year-over-year decline in six years and we already know second-quarter GDP will be far worse due to economic shutdown measures that did not take effect until March. Consumer spending, the largest component of GDP, fell 7.6%.
The strong rebound in stock prices despite such ugly economic data suggests a willingness by investors to look beyond what will surely be a deep, but hopefully short-lived, recession this year. The steady stream of massive stimulus announced by Congress and the Federal Reserve has made it easier to take the long-view.
We will avoid the nitty gritty details of various Fed and government programs announced since this epidemic began, but the sheer magnitude of support is tough to overstate. The Congressional Budget Office said in April that the response to COVID-19 could lead our federal budget to quadruple this year.
The Fed and our lawmakers’ willingness to support businesses and families was key to the April rally, but will also bring long-term consequences. Fed Chair Jerome Powell acknowledged as much when he said, “Now is not the time to worry about debt, but use the great fiscal power of the US to avoid deeper damage to the economy.”
Ten-year US Treasury bonds ended April yielding 0.62% (compared to 0.70% a month earlier). Interest rates seem destined to remain near historical lows for the foreseeable future. According to the Fed’s official statement on April 29, it “expects to maintain this target (rate) range until we are confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Large-cap stocks have weathered this economic uncertainty better than small-caps, although that gap narrowed somewhat later in April. The Russell 2000 gained 13.7% last month, better than both the Dow and S&P. Technology companies with especially large market capitalizations generally remain the best performers. As a sector, Technology finished April with positive year-to-date returns, compared to a 9.9% year-to-date loss for the S&P 500.
In a sign of how unusual these economic and market conditions truly are, crude oil traded below zero for a few days in April. Specifically, the contracts for May delivery traded with negative prices last month. Due to a combination of high production and evaporating global energy demand, negative prices indicated oil producers were literally willing to pay buyers to take oil off their hands in order to avoid storage costs.
It was the latest once-in-a-lifetime event to happen during this pandemic. It’s probably safe to say there will be more to come.
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The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
MSCI EAFE Index consists of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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