Market Share Newsletter Vol 2 Issue 10

The Economy

• The unemployment rate in the United States increased to 4.4% in March, up from 3.5% in February. Expectations are for the U.S. unemployment rate to reach the low teens by the end of April. As mentioned above, over the past three weeks there have been 16.8 million new people that have filed for unemployment benefits and that will find its way into the April unemployment rate.
• The Organization of the Petroleum Exporting Countries (OPEC), Russia, and other nations agreed this past weekend to a record cut in their global oil supply by 10% (9.7 million barrels per day). The expectations are for additional countries, such as the U.S., Canada, and Norway, to move in the same direction either due to a government decision or because of market forces.
• The Consumer Price Index pointed to one month of deflationary pressure as prices declined by 0.4% in March, after removing food and energy (core) prices it still declined by 0.1%. This was the first time since January 2010 that the monthly change in core prices declined in the U.S.
• Substantial economic data for March is being released this week and it comes with mildly alarming forecasts. Retail sales are expected to have declined by 8% and retail sales excluding autos and gas are expected to be down 5.1%, industrial production forecasted down 4.0%, housing starts down 19%, and building permits are forecasted to be down 11%.
• The International Monetary Fund (IMF) changed its global growth forecast to -3% this year—the worst since the Great Depression. IMF provided an alternative scenario that includes a lengthier pandemic with a 6% decline in global growth.

Economic Data: Recent
	Actual	Survey	Prior
Change in Nonfarm Payrolls	-701k	-100k	273k
Initial Jobless Claims	6606k	5500k	6648k
Consumer Price Index MoM	-0.4%	-0.3%	0.1%
ISM Manufacturing	49.0	44.5	50.1
Economic Data: Upcoming
		Survey	Prior
Retail Sales MoM		-8.0%	-0.5%
Industrial Production MoM		-4.0%	0.6%
Capacity Utilization		74.0%	77.0%
Housing Starts		1300k	1599k

Source: Bloomberg

Equities

• Johnson & Johnson reported first quarter earnings that beat forecasts and were up 9.5% year-over-year. They also raised their quarterly dividend by more than expected to $1.01 per share from $0.95 per share. Johnson & Johnson attributed a large portion of their earnings growth primarily to the sales of Tylenol and Motrin over-the-counter medicines.
• JPMorgan Chase reported a 69% decline in first quarter profits but not a surprise as the bank was preemptive and moved $6.8 billion into credit reserves ($3.8 billion specifically for their credit card division). The bank’s fixed income trading revenue gained 34% in the quarter.
• First quarter earnings reports kick into high gear as earnings from a diverse group (Bank of America, UnitedHealth, United Airlines, Abbott Laboratories, Honeywell, and Las Vegas Sands) are released this week.
• Developed international equities continued their struggle this year as they are down 21.2%, but over the past month they have bounced well off their lows and moved up by 9%. We continue to see additional stimulus measures around the world from Australia to Canada.

Source: Bloomberg

Fixed Income

• The Federal Reserve continued its expansion of monetary policy as it announced a $2.3 trillion new lending program last week that is focused on small and midsize business, and U.S. cities and states. The Federal Reserve’s corporate bond-buying program now includes corporations that have been downgraded to non-investment grade due to the coronavirus effects.
• Yields on investment grade corporate bonds have moved precipitously back in as they peaked on March 20 at 4.58% and then moved to 2.88% on April 13. The total return on the Bloomberg Barclays Corporate Bond Index over that time was 4.5%.
• Yields on municipal bonds have behaved similarly to corporate bonds as they topped out on March 23 at 3.52% and then moved back to 1.91% on April 13. The Fed’s drastic steps to shore up liquidity within the bond markets and provide zero interest rate lending has created the rally in the credit markets.