The stock market rally rolled on last week as investors welcomed the plans for some states to begin the process of reopening their economies in addition to some promising Covid-19 treatment data and the continued boost from Federal Reserve stimulus. For the week, the tech-laden Nasdaq Composite surged 6.1%, while the S&P 500 and Dow Jones gained 3.0% and 2.2%, respectively. However, other asset classes indicated a more cautious outlook driven by the economic fallout of the coronavirus pandemic. Small capitalization stocks broadly didn’t participate in last week’s gains as the Russell 2000 fell -1.4% on the week. Meanwhile, Treasury bonds also sounded a note of caution as yields slipped down further with the 10-year yield dipping to 0.66% from 0.73% in the week prior, though this is in part due to increased demand from Federal Reserve bond purchases. Treasury yields often move in sync with stock price rallies as investors shed the safe haven assets in favor of riskier assets.
Crude oil prices have also extended an unprecedented sell-off, falling below $0 per barrel for the first time on Monday as demand remains negligible due to travel restrictions and increasing supply has sopped up remaining capacity to store oil, thus making storage costs jump significantly. However, November oil futures still sit around $30 per barrel, reflecting expectations for a rebound in prices once the economy reopens and demand comes back online.
Last week’s initial unemployment claim reading reported another 5.2 million in job losses, bringing total unemployment claims to 22 million over the past four weeks alone, nearly wiping out all of the job gains since the Great Recession. However, it is important to note that a significant portion of job losses in recent weeks have been categorized as temporary. According to an analysis of March employment numbers by BCA Research, the portion of job losses categorized as temporary accounted for over 80% of the total. The pace of recovery from this crisis will be dependent on how much of employment and consumer demand are temporarily suspended as opposed to permanently impaired. That balance will be determined by the pace of the return to work, which requires sufficient testing capacity, and the effectiveness of stimulus from Congress and the Federal Reserve.
On that front, the White House and lawmakers are nearing a deal to replenish the $350 billion small-business emergency fund that ran out of money last Thursday, just weeks after initial funding. The potential agreement could total more than $450 billion, including $300 billion for the Paycheck Protection Program, $50 billion for the Small Business Administration’s disaster relief fund, and $100 billion for hospitals and coronavirus testing.
In the week ahead, earnings season ramps up with a fifth of S&P 500 companies set to report results and give their outlook on the road ahead. Investors already know that corporate profits overall will be down substantially in the first half of 2020, but the bigger questions are if share prices properly reflect the downturn and how well balance sheets will hold up without the need to resort to issuance of more debt or equity or unfavorable asset sales. Several economic updates are also on the docket this week including existing home sales, new home sales, and durable goods orders, as well as another jobless claims report.
