Market Update April 9, 2020 – Federal Reserve to the Rescue

Published by Waycross Partners on

U.S. stocks posted their best weekly gain in more than four decades on Thursday, buoyed by the Federal Reserve’s surprise announcement it would provide $2.3 trillion of funds through its lending programs to support the broader economy.

Data showed another 6.6 million Americans claimed unemployment benefits in the latest week but the disappointing news on the labor market was offset by the Fed’s lending announcements, including its unrolling of the $600 billion Main Street Lending program for small and medium sized businesses.

Investors’ hopes increased that the situation around the coronavirus was improving. In recent days, the number of new daily confirmed cases has dropped globally and in the U.S., virus hotspot New York state also reported a decline in its virus-related hospitalization rate. Treasury Secretary Steven Mnuchin also told CNBC on Thursday the U.S. economy could be re-opened in May.

A proposed agreement emerged from a virtual meeting on Thursday in which OPEC+ outlined a deal to cut oil production by 10 million barrels a day.

Chart of the Week: A Preview of Things to Come?

The recovery in Consumer spending in China may give us some insight into how US and European Consumer spending may react post-Covid-19 shut-downs.

Overall Chinese consumer spending was about 60% of normal and rose close to 100% of normal over a two-month period, with on-line sales leading and Domestic Travel and Restaurants lagging.  Big-ticket items such as Autos and Property Sales showed the largest time lags in beginning the recovery.

The bulls are beginning to test the market waters, the bears still expect the worst, and overall sentiment seems to hinge entirely on the latest coronavirus headlines. We expect market volatility to remain heightened for the foreseeable future. The past few weeks have proven that the market can reverse course at lightning speed. Investors who go to cash, trying to time the market, can pay dearly by missing even a few of the best days of gains.

An allocation to a hedged equity strategy like Long/Short Equity can allow investors the opportunity to participate in the market to pursue alpha while mitigating volatility and downside risk versus a long-only equity approach. As a result, these strategies can enable investors to remain invested across market cycles so they do not miss the market’s upswings.