Todd’s Take on the Market
Last week was another roller coaster ride as investors digested a number of developments around monetary and fiscal policy responses to the spread of COVID-19 and the early signs of the turmoil that it’s likely to cause the U.S. economy, yet it turns out to be one of the best weeks in almost forever. It was the Dow’s best week (12.84) since—get this—1938. Yes, that’s not a typo—1938, but still on track for the worst month in a very, very long time. The S&P 500 also enjoyed a stellar week, finishing up 10.28% and the NASDAQ finished up 9.06%.
Even with last week’s gains, year to date, the Dow is down 23.72%, the S&P 500 is down 20.96% and the NASDAQ is down 16.18%.
Notably, the Federal Reserve uncapped the number of assets it could purchase, widened the scope of eligible securities and established other vehicles to ensure liquidity continues to flow through the financial markets.
Additionally, Congress passed a $2.2 TRILLION fiscal package to help offset the financial toll on businesses and consumers. This is absolutely incredible! It makes QE 1, 2, 3 all look like child’s play by comparison. The FED is doing the equivalent of those multi-year QE programs several times over in a matter of days right now.
Elsewhere, data showed initial jobless claims skyrocketed to 3.3 million—and that’s not a typo either—breaking the previous record of 695,000 back in 1982. If you think that is bad, wait until this week’s print and last week’s revisions.
Flash PMI figures in the U.S, Japan and Europe for March are in deep contraction. While these figures are downright ugly and are likely to persist for some time, the Covid-19 crisis is making it possible to print get-out-of-jail-free cards for other economic readings and Wall Streeters who have been facing the collapse of huge leveraged finance contraptions.
More evidence of Coronavirus crippling the economy. There is not a single vehicle final assembly plant in the U.S. that is running this morning.
Folks, there is no playbook on how to handle this, we are witnessing history in the making. The short term is a guessing game and those that project a confident view should be kept away from your portfolios and children. I keep reminding everyone that NOBODY has ever traded this scenario before. There have always been, and will always be nasty selloffs. But collectively, nobody has lived through anything like this crazy scenario.
But last week was a start, and it’s important to remember that every bottom starts with a bounce, but not every bounce is a bottom. While some suggest we re-test the lows, others are saying it’s in.
It is important as an investor to pay attention to the reaction to the news, not the news itself. An example—is bad news being sold? Is bad news being ignored and bought? And so on. Never the news always the reaction.
The road will not be straight and there will be accidents along the way, but the trip can get us to our investment destination. Please stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
