Quarterly Market Review: April 2020

The Markets (first quarter through April 30, 2020)

April began on a sour note for stocks as each of the indexes listed here lost value. Economic reports reflected the negative impact of the COVID-19 pandemic. There were more than 700,000 jobs lost in March while total claims for unemployment insurance benefits soared to nearly 18 million. A cut in production didn't prevent crude oil prices from hitting negative numbers as demand waned and storage neared full capacity. Purchasing managers saw manufacturing hit lows not seen in more than ten years.

The federal government continued to try easing the economic strain on individuals and businesses. The Paycheck Protection Program and Health Care Enhancement Act replenished the Paycheck Protection Program, provided funding for additional small business loans, offered financial support to hospitals, and increased the availability for more virus testing. The Federal Reserve added trillions of dollars in funds to its lending programs for states, cities, and midsize businesses. But the economic strain prompted a few states to begin the process of easing lockdown restrictions and reopening a range of businesses, in lieu of stay-at-home restrictions.

Despite several periods of volatility, stocks enjoyed their best month since 1987. A spike during the week leading up to Easter pushed stocks ahead to stay for the month. Of the benchmark indexes listed here, only the Global Dow did not reach double-digit gains for the month. The Nasdaq climbed more than 15.0% and is less than 1.0% from its year-end value. The large caps of both the Dow (11.08%) and the S&P 500 (12.68%) posted solid gains as did the small caps of the Russell 2000, which jumped nearly 14.0%. While stock values rose in April, bond yields fell as prices climbed. The yield on 10-year Treasuries dropped 7 basis points from March and is close to 130 basis points below its 2019 value.

By the close of trading on April 30, the price of crude oil (CL=F) sank to $19.04 per barrel, well below the March 31 price of $20.35 per barrel. Reeling oil values sent prices at the pump spiraling downward. The national average retail regular gasoline price was $1.773 per gallon on April 27, down from the March 30 selling price of $2.005 and $1.114 less than a year ago. The price of gold rose by the end of April, climbing to $1,691.00 by close of business on the 30th, up from its $1,591.20 price at the end of March.

Market/Index 2019 Close As of April 30 Monthly Change Quarterly Change YTD Change
DJIA 28,538.44 24,345.72 11.08% -23.20% -14.69%
NASDAQ 8,972.60 8,889.55 15.45% -14.18% -0.93%
S&P 500 3,230.78 2,912.43 12.68% -20.00% -9.85%
Russell 2000 1,668.47 1,310.66 13.66% -30.89% -21.45%
Global Dow 3,251.24 2,661.71 7.81% -24.04% -18.13%
Federal Funds 1.50%-1.75% 0.00%-0.25% 0 bps -150 bps -150 bps
10-Year Treasuries 1.91% 0.62% -7 bps -122 bps -129 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Month's Economic News

  • Employment: Employment rose by 273,000 in February after adding 225,000 new jobs in January. In 2019, job growth averaged 178,000 per month. Notable job gains occurred in health care and social assistance, food services and drinking places, government, construction, professional and technical services, and financial activities. The unemployment rate dropped 0.01 percentage point to 3.5% for the month as the number of unemployed persons dropped by close to 100,000 to 5.8 million. In February, average hourly earnings for all employees rose by $0.09 to $28.52. Average hourly earnings increased by 3.0% over the last 12 months ended in February. The average workweek rose by 0.1 hour to 34.4 hours in February. The labor participation rate for February was 63.4%, the same as in the previous month. The employment-population ratio was 61.1% last month (61.2% in January).
  • FOMC/interest rates: The Federal Open Market Committee held several emergency meetings in March, dropping the target range for the federal funds rate 150 basis points to 0.00%-0.25%. To further combat the economic impact of COVID-19, the Committee proffered a number of new and drastic measures. Among the actions taken by the Fed are unlimited bond buying including the purchase of corporate bonds; $300 billion in new financing; and the establishment of two new facilities, the Term Asset-Backed Securities Loan Facility to enable the issuance of asset-backed securities, and a Main Street Business Lending Program to support lending to eligible small and medium-sized businesses.
  • GDP/budget: According to the third and final estimate for the fourth-quarter gross domestic product (GDP), the economy accelerated at an annualized rate of 2.1%, the same rate as in the third quarter. Consumer spending grew at a rate of 1.8% (3.2% in the third quarter), fixed investment fell 0.6% in the fourth quarter (-0.8% in the third quarter), and nonresidential fixed investment dropped 2.4% in the fourth quarter, compared to a 2.3% decline in the prior quarter. Consumer prices advanced at a rate of 1.4% in the fourth quarter, comparable to the third quarter (1.3%).
  • Last February saw a budget deficit of $235 billion. Through the first five months of the 2020 fiscal year, the deficit sits at $624.5 billion, 14.8% greater than the deficit over the same period last fiscal year. Compared to the same period last year, government spending climbed 9.2%, far exceeding receipts, which rose 7.0%. In February, the largest expenditures were for Social Security ($91 billion), income security ($91 billion), national defense ($55 billion), and Medicare ($52 billion). On the income side of the ledger, social insurance and retirement accounted for $100 billion and individual income taxes totaled $70 billion.
  • Inflation/consumer spending: According to the Personal Income and Outlays report for February, personal income rose 0.6% for the month, the same advance as in the previous month. Disposable, or after-tax, income increased 0.5% after increasing 0.6% in January. Consumer spending rose 0.2% in February for the second consecutive month. Price inflation remained low, however, as consumer prices inched ahead 0.1% for the third month in a row. Over the last 12 months, consumer prices are up 1.8%.
  • The Consumer Price Index inched ahead 0.1% in February, the same increase as in January. Year to date, consumer prices are up 2.3%. Increases in prices for shelter (which makes up the largest portion of overall consumer costs) climbed 0.3% in February following the same 0.3% increase in January. Energy prices dropped 2.0% in February after falling 0.7% in January. Gas prices plummeted 3.4% while fuel oil prices decreased 8.5%.
  • Prices producers receive for goods and services fell 0.6% after advancing 0.5% in January. The index has increased 1.3% since last February. Producer prices less foods, energy, and trade services inched down 0.1% in February following a 0.5% increase in January. Since February 2019, prices less foods, energy, and trade services moved up 1.4%. In February, producer prices for goods fell 0.9%, the largest decline since moving down 1.1% in September 2015. Over 60% of the February decrease in goods prices is tied to a 3.6% drop in energy prices.
  • Housing: After falling 1.3% in January, existing home sales jumped 6.5% in February. Year over year, existing home sales are up 7.2% (9.6% for the 12 months ended in January). The median sales price for existing homes was $270,100 in February, compared to $266,300 in January. Existing home prices were up 8.0% from February 2019. Total housing inventory at the end of February was 1.47 million, an increase from the January rate of 1.42 million units for sale. Following a strong January, sales of new single-family homes decreased in February, falling 4.4% below January's totals. Sales are 14.3% above the February 2019 estimate. The median sales price of new houses sold in February was $345,900 ($348,200 in January). The average sales price was $403,800 in February ($402,300 in January). Available inventory, at a 5.0-month supply, was slightly lower than January's 5.1-month supply.
  • Manufacturing: After increasing in February, industrial production fell 5.4% in March, as the COVID-19 pandemic led many factories to suspend operations late in the month. Total industrial production was 5.5% lower than a year earlier. Manufacturing output dropped 6.3% last month with most major industries posting decreases, led by motor vehicles and parts, which plummeted 28.0%. Durable goods orders were negatively impacted by COVID-19 in March. New orders for durable goods decreased 14.4% following a 1.1% increase in February. The March decrease followed three consecutive monthly increases. For the year, new orders for durable goods are down 5.2%. While most manufacturers of durable goods saw orders fall, hardest hit were nondefense aircraft and parts (-295.7%) and transportation equipment (-41.0%). New orders for capital goods (manufactured assets used by businesses to produce consumer goods) fell 26.8% in March, driven primarily by a decrease in new orders for nondefense capital goods, which receded 33.4%.
  • Imports and exports: Import prices fell 2.3% in March after inching down 0.5% in February. The March decrease in import prices was the largest decline since import prices fell 3.2% in January 2015. Since March 2019, import prices have fallen 4.1%, the greatest year-over-year fall since import prices dropped 4.7% for the 12 months ended in June 2016. Fuel imports plunged 26.8% in March, the largest monthly decline since prices plummeted 27.8% in November 2008. Prices for exports dropped 1.6% last month, following a 1.1% decline in February. This is the largest monthly decrease in export prices since January 2015. Prices for exports decreased 3.6% on a 12-month basis from March 2019. The international trade in goods deficit was $64.2 billion in March, up $4.3 billion from $59.9 billion in February. Exports of goods for March were $127.6 billion, $9.1 billion less than February exports. Imports of goods for March were $191.9 billion, $4.8 billion less than February imports. The latest information on international trade in goods and services is for February and shows that the goods and services trade deficit was $39.9 billion, down from the $45.3 billion deficit the previous month. February exports were $207.5 billion, $0.8 billion less than January exports. February imports were $247.5 billion, $6.3 billion lower than January imports.
  • The international trade in goods deficit was $59.9 billion in February, down from $65.5 billion in January. Exports of goods for February increased 0.5% to $136.5 billion. Imports of goods dropped 2.6% to $196.4 billion.
  • The latest information on international trade in goods and services, out March 6, is for January and shows that the goods and services trade deficit shrank to $45.3 billion, $3.3 billion less than the December trade gap. January exports were $208.6 billion, $0.9 billion less than December exports. January imports were $253.9 billion, $4.2 billion lower than December imports.
  • International markets: Some countries began easing shutdown restrictions as COVID-19 infection levels started to level off. Germany, Italy, and Australia are a few of the nations that have begun seeing a slight reduction in the spread of the pandemic. Nevertheless, global economies are facing severe downturns. April's purchasing managers' indexes for the vast majority of reporting countries have proffered similar results: deepening industrial contraction. Purchasing managers' indexes for France, and Germany and other eurozone nations recorded historic lows last month and are not expected to reverse course in May. In Asia, China's economy contracted 6.8% on the year and -9.8% for the first quarter. The European Commission's economic sentiment index (ESI) was down a record 26.8 points in April, reflecting a broad-based worsening of short- and long-term economic projections.
  • Consumer confidence: The Conference Board Consumer Confidence Index┬« deteriorated further in April following a sharp decline in March. The index fell from 120.0 in March to 86.9 in April. The Present Situation Index—based on consumers' assessment of current business and labor market conditions-plunged 90.4 points, falling to 76.4. However, the Expectations Index, which is based on consumers' short-term outlook for income, business, and labor market conditions, improved from 86.8 in March to 93.8 in April.

Eye On the Year Ahead

While April was a solid month for stocks, the economy has slowed dramatically. As more data is revealed, the news on the economic front is expected to continue to show the negative impact of COVID-19. Jobs, manufacturing, and government spending are sectors expected to be hit hardest.

Disclosures

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.