Weekly Market Recap April 20, 2020…2020/04/20 · lo 1 Weekly Market Recap April 20, 2020 Price...

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Weekly Market Recap April 20, 2020

Price Returns Index Close Week YTD Dow Jones Industrial Average 24,242 2.2% -15.9% S&P 500 Index 2,875 3.0% -11.0% NASDAQ 8,650 6.1% -3.6% Russell 2000 Index 1,582 -1.5% -22.3% MSCI EAFE Index 1,581 6.3% -22.4% 10-yr Treasury Yield 0.65% -0.1% -1.3% Oil WTI ($/bbl) $23.75 4.3% -61.1% Bonds* $117.25 0.0% 5.1% Source: Bloomberg, 04/17/20 *Bonds represented by the iShares U.S. Aggregate Bond ETF

Last Week: U.S. Equity Markets

• U.S. large cap equities (S&P 500 Index) rose +3.0% as signs of slowing the coronavirus outbreak continued, and President Trump offered plans for reopening the U.S. economy. The Federal Reserve continued to provide unprecedented liquidity and monetary stimulus. The dollar index was up ~0.25%, while gold fell -3%. Oil was volatile despite an agreement between Saudi Arabia and Russia for production cuts of expected 10M barrels per day (bpd). Smaller cap stocks lagged significantly, as did Transports and Utilities, with the total number of declining stocks outnumbering winners for the week

• Sector performance: o Consumer discretionary (+7.9%) outperformed with strength in Amazon (+16%), Tesla (+31%),

discount retailers, and fast food stocks o Health care (+6.1%) outperformed with strength for United Health (+10% on earnings), Abbott

Labs (+12%), and Gilead (+14% on COVID-19 treatment news) o Information technology (+4.8%) outperformed led by software & semiconductors o Consumer staples (+4.2%) outperformed led by Procter & Gamble (+9%), Walmart (+8.5%), and

other discount retailers o Communication services (+4.1%) outperformed led by Netflix (+14%) & Activision Blizzard

(+11%), while telecom stocks underperformed o Energy (+0.2%) underperformed as oil price volatility continues o Industrials (-0.1%) underperformed with weakness in airlines, machinery, and building

materials o Utilities (-0.5%) underperformed as investors favored less defensive sectors o Materials (-2.1%) underperformed led by chemicals, paper, and industrial metals o REITs (-2.8%) underperformed with weakness in retail and mortgages

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o Financials (-4.0%) underperformed as J.P. Morgan other banks reported worsening credit fundamentals

• The reduced number of new COVID-19 cases in the U.S. or the “flattening of the curve” likely has contributed to the two week rise the S&P 500 Index

Source: The Daily Shot

• The S&P 500 and the Nasdaq 100 have benefitted from the strength in Amazon (+29%), Netflix (+31%), Tesla (+80%), and Microsoft (+13%) as the Nasdaq 100 has actually generated a positive total return in 2020

Source: Wall Street Journal

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• With the recent rally in equities, investors may be wondering if current valuations are less attractive given the uncertainty of the COVID-19 crisis and its economic impact. It’s worth noting that the S&P 500’s historical market recoveries from crises consist largely of multiple expansion as equity investors typically anticipate the economic recovery prior to significant improvement in earnings and broad economic data

Source: WSJ: The Daily Shot

• According to Bloomberg, the 2020 (year-to-date) S&P 500 total return primarily has been driven by a reduction in 12 month earnings expectations, while the P/E multiple has modestly expanded

Source: The Daily Shot, Bloomberg

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• Earnings estimates should be taken with a “grain of salt” as consensus estimates today include a mix of stale forecasts and more-recently updated ones, leading to an unusually high level of dispersion among analysts

• Following recessions, it has taken several years before S&P 500 earnings return to previous highs, a

reminder that earnings aren’t a leading indicator

Source: Credit Suisse

• Given the global economic shutdown from the COVID-19 crisis, the IMF expects a steep global recession in 2020, followed by a robust rebound in 2021

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Source: WSJ: The Daily Shot, Scotiabank Economics, IMF

• The picture below shows the breadth and depth of previous U.S. recessions; of course, the current one will clearly be different

Source: BEA, Bloomberg Economics

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Fixed Income Markets • Federal Reserve asset purchases likely have contributed to the robust flows into high-yield funds over

the past few weeks

Source: WSJ: The Daily Shot, Lipper

U.S. Economic and Political News

• Weekly Jobless Claims printed 5.25 million, somewhat better than the 5.8 million consensus forecast. According to Marketwatch, based on recent weeks’ data, the unemployment rate likely has pushed up to the 15% area

• Jobless claims are one of the inputs in the U.S. Leading Economic Indicators, which fell by the most on record in March: -6.7%, nearly double the previous record of -3.4% in October 2008

• The Empire Manufacturing index plummeted to -78.2 in April, far below the -33.9 consensus forecast • Industrial Production fell -5.4% in March, worse than the -4.0% consensus forecast, its steepest decline

since 1946. Capacity Utilization dipped to 72.7% (versus 74.5% consensus) • Retail sales slumped -8.7% in March, below the -7.0% consensus estimate, and their largest drop on

record (previous record was -3.9% in November 2008). Excluding Automobile sales, the figure came in at -4.5%, which was modestly better than the -5.0% projection. Keep in mind, retail sales do not include transactions for airlines & hotels

Source: Cornerstone Macro

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• The Fed’s emergency actions to purchase assets and improve liquidity may expand its balance sheet to near $9.3 trillion, more than double the prior record

Source: Oxford Economics

International Markets and News • The Chinese stock market (Shanghai Composite) rose 2% as industrial production rebounded sharply,

partially offset by reports of first quarter GDP shrinking -6.8% o Bank lending and credit data released on April 10 showed strong signs that China’s monetary

policy has accelerated along with record-high corporate bond issuance of RMB 995B and a rebound in both household and corporate borrowing. M2, a broad measure of the money supply, increased 10.1% year over year, the fastest pace since March 2017

o A sign of improving economic activity is Goldman Sachs’ industrial activity tracker, which appears to approaching pre-COVID-19 levels

Source: Goldman Sachs

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• European equities (STOXX Europe 600) rose +0.5% amid hope that coronavirus infection numbers were beginning to slow in Europe, which saw some countries begin the process of gradually re-opening their economies. Sentiment was hampered by Eurozone finance ministers failing to come up with an agreement on a recovery fund

o Sentiment improved regarding Italy and Spain “flattening the curve” of new infections and Germany laid out plans to re-open its economy, partially offset by the UK and France extending their lockdowns into the next month

o Eurozone finance ministers reached a deal worth €540B, which included a fund for unemployment insurance worth €100B, European Investment Bank loan guarantees worth €250B for firms, and use of the European Stability Mechanism (ESM) for €240B with limited conditions, however, they could not agree on the details for a European recovery fund

• Japanese equities (Nikkei 225 Index) rose +2% as global equities increased despite Prime Minister Abe declaring a nationwide state of emergency as well as giving authorities more power to urge businesses to close and residents to stay at home until May 6 as Japan’s Health Ministry warned that if no immediate measures are taken, a second wave of COVID-19 infections could result in 850,000 seriously ill patients

o The IMF lowered its calendar year 2020 GDP projections for the world and Japan to -3.0% and -5.2%, respectively

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This Week:

• Oil is getting trounced again, falling by 37% this morning, all the way down to sub-$12/barrel, a level not seen for 20+ years. If a 37% one-day decline doesn’t involve a margin call of a large investment fund, we’d be surprised. Near-term prices reflect dwindling storage capacity, as shown in the accompanying chart, which only reflects oil’s year-to-date performance

Source: FactSet

• Corporate news flow will increase this week with notable earnings including, but not limited to: Halliburton, IBM, Coca-Cola, Equifax, M&T Bank, Netflix, SAP, Lockheed Martin, Texas Instruments, Citigroup, Chubb, US Bancorp, Moody’s, HCA Holdings, AT&T, NextEra, Las Vegas Sands, Kinder Morgan, Verizon, Eli Lilly, Phillip Morris, Sanofi, Union Pacific, Domino’s Pizza, Hershey, PulteGroup, American Express, Blackstone, Capital One, Paccar, Chipotle, TD Ameritrade, Nasdaq, Old Dominion Freight Line, Southwest Airlines, Snap, Delta Air Lines, KKR, Ameriprise Financial, Restaurant Brands, Omnicom, IDEX Corp, Discover Financial Services, Tractor Supply

• The foreign macro-economic calendar will see Chinese foreign direct investment numbers on Monday, and Japanese manufacturing and CPI later in the week. In Europe look for trade balance, unemployment, retail sales, manufacturing PMI, and consumer confidence as well as German business climate and assessment expectations

• U.S. Economic data: o Monday: Limited economic data, but corporate earnings will be released o Tuesday: Retail sales (m/m), Existing Home Sales o Wednesday: MBA Mortgage Purchase Applications, CPI (y/y), FHFA House Price Index o Thursday: Flash Manufacturing PMI, Flash Services PMI, New Home Sales o Friday: Core Durable Orders, Durable Orders ex transport, Durable Orders, Michigan

Consumer Sentiment (Final)

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As always, thank you very much for your interest in our thoughts and support of our services.

Whitney Stewart, CFA®

Executive Director Adam Bergman, CFA® Executive Director

The Chartered Financial Analyst® (CFA) charter is a graduate-level investment credential awarded by the CFA Institute — the largest global association of investment professionals. To earn the CFA charter, candidates must: 1) pass three sequential, six-hour examinations; 2) have at least four years of qualified professional investment experience; 3) join CFA Institute as members; and 4) commit to abide by, and annually reaffirm, their adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.

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The opinions contained in the preceding presentation reflect those of Sterling Capital Management LLC, and not those of BB&T Corporation now Truist Financial Corporation or its executives. The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Sterling Capital Management LLC does not assume liability for any loss which may result from the reliance by any person upon such information or opinions.

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Weekly Market Recap April 20, 2020…2020/04/20 · lo 1 Weekly Market Recap April 20, 2020 Price...

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