Week in Review

Week in Review: April 3, 2020

Fighting the Coronacrisis Part III

The major U.S. equity indexes closed the week lower, rounding out their worst monthly and quarterly performances since 2008, amid deepening investor uncertainty about the severity and duration of the COVID-19 pandemic. The week’s economic data reports reflected the initial damage of the coronavirus crisis on the economy, particularly on the labor market. Containing the coronavirus has forced the U.S. to a sudden economic halt as dozens of states and cities took drastic measures to battle the fast-spreading disease, including stay-at-home orders for all their residents and shuttering nonessential businesses. President Trump announced last week that he would extend nationwide social distancing guidelines for another 30 days, until April 30. As equity risk appetite receded, investors turned to the relative safety of U.S. Treasuries. As a result, the yield on the 10-year U.S. Treasury note fell for a third consecutive week. 

Economic indicators like employment data are only beginning to factor in the scale of economic damage wrought by the pandemic. On Friday, the Labor Department reported that the U.S. lost 701,000 jobs last month, marking the first decline in job creation in a decade. Meanwhile, a record 6.6 million Americans applied for unemployment benefits last week — double the previous week’s job losses of 3.3 million — raising the total tally of Americans who are out of work due to the coronavirus-driven downturn to near 10 million. In turn, many economists have been forced to revisit their initial estimates and now expect the current 3.5% unemployment rate (which in February matched a half-century low) to double or triple in coming months. Gross domestic product estimates range widely, but most economists expect a severe second-quarter drop will be followed by a rebound in the second half of the year as the pandemic abates. Across the world, economic data also wasn’t encouraging. In Europe, the Purchasing Managers’ Indexes for the services sector in the Eurozone fell to the lowest level ever.

Internationally, market participants welcomed initial economic reports from China that indicated that after plummeting in February, economic activity marked a sharp rebound in March. However, it is worth noting that the risk of a second wave of infections is underscored by China reintroducing some curbs on movement. Any new outbreak would dampen confidence and prolong lockdowns elsewhere too. On Thursday, hopes of a ceasefire in the price war between Saudi Arabia and Russia gave investors a sigh of relief after President Trump stated that he spoke to the two sides about a possible deal. A meeting of OPEC+ members, including Russia, was hastily scheduled for Monday as the coronavirus pandemic knocked out as much as a third of global demand. At the same time, Bloomberg reported that the oil-price slump threatens the budgets and political stability of oil-dependent nations, the existence of the U.S. shale industry and millions of jobs in a sector already in turmoil. On Friday, Russian President Vladimir Putin said his country is prepared to take part in deep cuts in oil production together with Saudi Arabia and other major producers to halt the slide in prices. Signs that Saudi Arabia and Russia may end an oil feud sent prices up more than 20% on Thursday, the biggest one-day leap on record (see Figure 1).

Despite the dismal performance this quarter, equity market volatility has eased from its March peaks, with fewer U.S. stocks hitting new 52-week lows. Meanwhile, liquidity in fixed-income markets has improved, and credit spreads, while still wide, receded from their March highs. Against the current backdrop, a deep global recession in the first half of this year is highly likely, lasting at least into the summer and possibly prolonging into the fall. However, Fed chairman Powell recently commented that the U.S. economy was “fundamentally strong” before the pandemic and predicted that it would rebound once the virus’s spread is controlled. In our view, the shape of the recovery in the global economy may depend upon how long it takes until people can leave or feel comfortable leaving their homes again, which is not expected until we see a substantial drop in infection cases. 

While painful on many levels, the nature of the virus leads us to believe that the coronavirus pandemic is likely to be a short-term phenomenon, given that the virus will eventually diminish as infections peak, the population’s immunity rises and vaccines are eventually introduced. Investors, in turn, should be building portfolios with a long-term perspective. For most investors, ensuring there is clarity in the goals and purpose of the investment portfolio is essential to a well-designed allocation that has the potential to meet both their short-term and long-term objectives. We expect that a number of trends that were underway before the current global shutdown began will not only continue, but accelerate. Some undercurrents that will be reinforced by the pandemic include greater use of video streaming, teleconferencing and online learning technology, rising use of thermal imaging, and a resurgence in medical and biotechnology investing. While it is too early to understand all of the changes that may come on the back of COVID-19, we are confident that the adaptability of U.S. businesses and consumers is an enduring quality that will allow investors to capture the changes.

In these current times of cheap money, massive stimulus and low energy costs, we continue to believe there are a number of opportunities to consider. High volatility will create opportunities for investors to upgrade portfolios, to review tax-efficient strategies and to ensure there is appropriate alignment between their investments and financial goals. For many clients, raising cash levels in the near term can provide an additional layer of peace of mind and tranquility. The swift economic downturn has made it more important than ever to have a cash buffer, as well as saving some dry powder for future investments. With the average stock still down more than 35% this year, many high-quality, low-debt and secure dividend companies have now repriced to more historically attractive levels. The same upgrading applies to bond portfolios as well; we anticipate a wave of bond downgrades as companies struggle with higher costs and lower revenues, and there are likely to be a number of restructurings as the year progresses. Therefore, we recommend bond investors to gravitate toward high-quality companies and avoid riskier corners of the credit market until credit conditions stabilize.

Figure 1: Oil rises as President Trump talks up chances of Russia-Saudi pact

Brent oil, dollars per barrel

Brent oil 

Source: Thomson Reuters (as of 4/3/20)

Market Returns (USD)

as of 4/2/2020





Global Equities

MSCI All Country World

-3.5% -2.5% -23.3% -14.5%

S&P 500

-3.9% -2.2% -21.4% -10.1%

Dow Jones Industrial Average

-5.0% -2.3% -24.5% -16.2%


-3.9% -2.7% -16.3% -3.6%

Russell 2000

-7.9% -5.8% -34.7% -29.0%

First Republic Founders Index

-7.8% -5.1% -28.5% -

Russell 1000 Equal Weighted

-6.1% -3.3% -31.0% -26.1%


-3.3% -3.4% -25.5% -18.2%

MSCI Emerging Markets

-1.4% -1.2% -24.5% -19.6%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

-1.4% -1.4% -2.0% 1.3%

Bloomberg Barclays Intermediate Government/Credit

0.8% 0.0% 2.4% 7.1%

Bloomberg Barclays High Yield Bond

1.6% -1.4% -13.9% -8.5%

JPMorgan GBI Emerging Markets Global Diversified

-2.7% -1.7% -16.7% -8.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2526.9 2630.07 3230.78 2873.4

Dow Jones Industrial Average

21413.44 22552.17 28538.44 26218.13

10-Year U.S. Treasury Yield (Constant Maturity)

0.63% 0.83% 1.92% 2.52%

Gold ($/oz)

$1,613.99 $1,631.34 $1,517.27 $1,289.93

Crude Oil ($/barrel)

$25.32 $22.60 $60.41 $62.46

U.S. Dollar / Euro ($/)

1.11 1.07 1.12 1.12

U.S Dollar / British Pound ($/£)

1.24 1.22 1.33 1.32

Japanese Yen / U.S. Dollar (¥/$)

107.94 110.93 108.61 110.63