Posted April 30, 2020

Closed for Business

Last month we said the best word to describe March was historic and for April the word may be amazing. The S&P 500 dropped 35% when the corona virus shut down the world’s largest economy and, although the economy remained closed for the entire month of April, the market rallied to its best monthly performance in over 30 years. We came into the corona panic with a strong economy and investors are betting once the economy reopens it will be strong once again. We are obviously now in an economic recession which would typically drive stock prices lower, but investors appear to believe the massive amount of money being pumped into the economy by the government and foreign investors, will make the recession a short one. Despite some selling today the S&P 500 gained an impressive 12.7% in April and is now down 9.8% for the year. Oil was in the headlines and despite a strong rally at the end of the month the price of the June contract ended the month with a loss of 22% an under $20 per barrel.

After losing 12.5% in March the S&P 500 began April with more losses as the virus continued to spread and President Trump said we were in for a couple of tough weeks. The government reported another 700,000 jobs were lost in March and the economy appeared to be in a downward spiral. At the end of the first 3 trading days the S&P 500 had lost another 3.7%. The first full week of the month, shortened by the Good Friday market holiday, saw the market roar back with one of its best weekly gains in modern history. The Fed announced another $2.3 trillion loan program and improving virus numbers had investors starting to believe that a worst-case scenario relating the Covid-19 was becoming less likely.   At the end of the week the S&P 500 had gained an incredible 12%. The second full week saw the market continue to move higher as talk turned from the daily death rate to reopening the economy. There was excitement about a Gilead drug that was showing promising results, but it is a treatment and not a vaccine. Plummeting oil prices continue to weigh on the market, but the S&P 500 was able to gain another 3%. Last week was all about oil with the price of the May contract moving into negative territory for the first time in history. Oil prices did stabilize at the end of the week, but weighed on the market, sending the S&P 500 to a 1.3% loss. The market continued to power higher this week on excitement about the economy reopening which is a first step in getting back to normal. Good results from Gilead’s Covid treatment helped the market move to levels not seen since before the economic shutdown and a statement from the Fed that they will do “whatever is necessary” help buoy confidence.

May is an unknown at this point. It appears many parts of the economy are going to reopen, and the jury is out on what that might do to the number of Covid cases. If we can get the economy reopened and the number of cases doesn’t spike higher, we would expect the market to respond favorably. The big unknown at this point is how quickly things will recover. For 6 weeks we have been told to stay at home and not get within 6 feet of other human beings, going from that to busy restaurants, movie theatres and stores may take some time. We have been surprised at the incredible 35% rally off the March 23rd low and wonder if the market isn’t being unrealistic in its belief on the speed with which the economy will recover. We are obviously in the early stages of a recession and the market is believing the massive amount of money being spent by the Federal government will keep the recession short. We are a bit more cautious. We were buyers on the big drop in late March and we have been taking some of that money off the table over the last few days.

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