Market Perspective for April 10, 2020

Equities staged a broad rally this week. The Dow Jones Industrial Average climbed 12.63 percent for the week, the S&P 500 Index 12.07 percent and the Nasdaq 10.58 percent. The major indexes have retraced 50 percent of their losses between February 19 and the low on March 23.

SPDR Materials (XLB) advanced 20.58 percent as beaten down commodity producers rallied along with the broader market. SPDR Financial (XLF) popped 19.05 percent on the week, with substantial gains coming on Thursday after the Federal Reserve announced it would purchase junk bonds and high-yield ETFs. SPDR Utilities (XLU) climbed 17.46 percent and SPDR Consumer Discretionary (XLY) 13.45 percent.

The Federal Reserve announced a $2.3 trillion lending program for households, governments and high-yield debt. The Fed will buy bonds directly from states if the bonds are for short-term financing of operations, though the bonds cannot have maturity beyond 2 years. As for junk bonds, the Fed will buy “fallen angel” bonds that were investment grade as of March 22 but were later downgraded. Lending to main street will come via increased purchases of small business loans.

iShares iBoxx High Yield Corporate Bond (HYG) rose 6.55 percent on Friday and 11.93 percent for the week. Invesco Senior Loan (BKLN) advanced 8.65 percent and iShares iBoxx Investment Grade Corporate Bond (LQD) 8.64 percent.

Sentiment indexes showed the effect of the coronavirus this week. The National Federation of Independent Business small-business confidence index slipped to 96.4 in March. The University of Michigan’s consumer sentiment index was 71. Producer prices fell 0.2 percent in March, less than the predicted 0.3 percent decline. Consumer prices increased 0.2 percent, much higher than the consensus estimate of a 0.4 percent decrease.

Even though the Fed announced another major bailout, the U.S. dollar saw a mild impact. The U.S. Dollar Index fell only 0.8 percent for the week. The U.S. indexes dramatically outperformed their foreign counterparts. iShares MSCI EAFE (EFA) rose 6.66 percent for the week and iShares MSCI Emerging Markets (EEM) 4.67 percent.

Crude oil ended down more than 15 percent after OPEC infighting intensified.  Russia and Saudi Arabia agreed to cut 5 million barrels, while the rest of OPEC agreed to cut another 5 million. Additionally, OPEC called on the U.S. and Canada to cut another 5 million barrels when the G20 meets on Friday.

Earnings season will heat up over the coming weeks. Starbucks (SBUX) came out with guidance this week, indicating it expects earnings between $0.28 and $0.32 per share, down from $0.60 in 2019. It will report earnings on April 28. Still shares of Starbucks rallied 3.23 percent on the news.

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