Most major financial indexes from stocks to bonds finished off the month of March lower, closing out one of the worst monthly performances since 2008. The rate of decline and the magnitude for the month, as measured by the Dow Jones, was the worst on record going back to the 1930s. On a brighter note, energy stocks experienced a rally mid-week on Trump’s tweet that he had talked to the Crown Prince of Saudi Arabia who spoke to President Putin regarding production cutbacks. Despite the rally, the oil sector was one of the worst-performing sectors on the TSX, falling over 30.8% (YTD was 37.2%) and 34.8% on the S&P (YTD was 50.45%). Additionally, the market responded positively to another Trump tweet calling for a “phase 4” stimulus infrastructure package. Democrats were on board immediately, whereas some Republicans wanted to wait for the impact of the original $2 trillion stimulus package to determine the effectiveness and areas where additional assistance might be needed.
The week started on a positive note with gains, the first in four weeks. Many large pensions are required to re-balance for quarter-end or when asset allocation ranges are breached. This re-balancing is usually a low-volume activity. It was not surprising that light equity volume pushed the markets higher and was not likely sustainable as we entered into April.
Accelerating coronavirus infection rates in the US, European countries, and the corresponding “stay at home” enforcements were reflected in the employment statistics. The first round of economic data was no surprise with jobless claims jumping to 6.6 million Americans applying for benefits, much higher than consensus. The Labor Department reported Friday morning that non-farm payrolls fell by 701,000 in March, which was one-seventh of the consensus expectations. What was not picked up by the media is the fact that the non-farm payroll figures were not for the whole period of March but only covered the first two weeks of the month. A more accurate indication is the monthly household survey that reported the job loss figures to be over 3 million. Interestingly, the Supply Management index of non-manufacturing activity showed an expansion in March. The reporting period likely is for an early period rather than for the end of March.
The market is responding to the coronavirus rate of infections and death rates along with additional influences such as the monetary and fiscal policies. Economic data is anticipated to be negative, but no one is certain of the economic impact of social distancing, layoffs, closings of service industries, working from home, and closing of small businesses. As we move forward, financial data, at least in the first quarter, is anticipated to become increasingly worse, pushing global economies into a recession. The depth and magnitude will be driven by our ability to contain the virus and eventually find a vaccine to prevent further infections and corresponding economic shutdowns. As the infection rate subsides and economic activity resumes, the fear of a flare-up is highly probable, as reported in China. This possibility will force a slow return to economic normalization as governments will tread on the side of caution, further exaggerating the hardship on businesses and individuals least likely to have a fallback. The recovery when it comes will be slow and will look different than when we entered this period.
With this dislocation and the proper guidance, there are investment opportunities seldom seen in a lifetime. Creative and outside-of-the-box thinking is, at least in my opinion, the only way to navigate this troubling time and minimize the damage to portfolios.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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