Stocks rebounded sharply this week even as the COVID-19 pandemic continues to spread rapidly in the United States. The movement toward passage of the nearly $2 trillion fiscal stimulus package and unprecedented actions from the Federal Reserve (Fed) helped stocks snap back. Slowing growth in new cases in some countries provided reassurance.
After tumbling 34% from its February 19 record high through the March 23 low, the S&P 500 Index gained over 10% through Friday, including the biggest three-day rally since the 1930s. The Dow Industrials rallied 21% off its lows, causing some to call its bear market over, before pulling back on Friday. The Nasdaq Composite lagged slightly, but it remains the best-performing major index in 2020.
Small caps outpaced their larger cap counterparts, while value stocks eked by growth for the week. Utilities topped the sector rankings, while industrials benefited from the fiscal stimulus package and outperformed. Communication services and consumer staples lagged.
US economic data provided the anticipated evidence that recession has arrived. Jobless claims surged by over 3 million, nearly five times the all-time record. The Markit Purchasing Manager’s Index (PMI) data for the services sector, at 39.1 for March, provided further evidence of recession.
Emerging market equities lagged through Thursday, with the MSCI Emerging Markets Index gaining 6%. The developed international MSCI EAFE Index gain of 12% through Thursday approximated the S&P 500’s move. Markets in Japan and Korea led, while China lagged.
All fixed income indexes we track were up as financial markets rallied after monetary and fiscal policy measures were put in place to ease the burden of COVID-19 on the US economy. The US Treasury yield curve shifted down and flattened slightly as 10-year US Treasury yields ended the week down 23 basis points (0.23%) at 0.69%. High yield municipal bonds performed best among the indexes we track, with municipal bonds and emerging market bonds all having very strong showings. International sovereign debt was the worst weekly performer, but it still posted gains as markets digested the effects of the government stimulus packages.
Oil prices suffered a weekly decline of almost 5%, the fifth down week in a row, during which time the price has declined by almost 65%, as global recession fears continue to weigh heavily on prices. The US dollar lost all of its gains from the prior week as a more risk-on sentiment and aggressive Fed policies contributed to decreased demand for the greenback. Gold bounced back from two down weeks in a row with its biggest weekly increase since 2008. Copper is still trading near its 2015–16 lows amid demand concerns.
Next week’s US economic calendar will unfortunately feature another devastating jobless claims number on Thursday, providing investors with more recessionary economic data. Other data of note for next week includes Conference Board consumer confidence (Tuesday), the Institute for Supply Management (ISM) PMI for manufacturing (Thursday), and nonfarm payroll employment (Friday), where Bloomberg’s consensus forecast is calling for 100,000 jobs lost in March.
Internationally, in terms of timely data reflecting economic activity in March, investors will get Markit’s manufacturing and services surveys for the Eurozone and China.
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