Market Share Newsletter Vol 2 Issue 10


April 14, 2020

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Last week the equity markets looked past the bad news, focused on fiscal and monetary policy, and explored the future reopening of the economy for the first time since the beginning of the COVID-19 outbreak in the United States. The U.S. stock market had its best week since 1974. Historically in bear markets, there is at least one 20% move up and another move down near the lows before the real bull market begins. Even with the best week in 46 years, there was volatility as each day prices moved anywhere from 2.5% to 7%. We are not implying that the virus or the deteriorating economy is behind us, but the markets looked ahead.
In week three of massive layoffs, another 6+ million more people filed for unemployment bringing the total to 16.8 million during that time period. The total equates to nearly one out of every ten employees being unemployed in the U.S. In the interim, it appears those large numbers will continue. The number of virus cases and deaths continued to climb, even with the curve flattening in some areas. New hot spots emerged despite efforts to slow the curve growth. It seems likely that the shutdown will be extended across much of the U.S. and the number of jobless claims will remain high, for at least the next few weeks.
While seemingly premature in the middle of the pandemic, proper planning for the reopening is essential. This planning should help Americans feel more secure that normal life will resume. It will not be the normal we have been used to, but much more normal than today.
The current week also brings first-quarter earnings announcements. As expected, there is increased interest in learning the steps companies are taking to cope in the current environment, but any forward guidance will likely be limited without a clear timeline for reopening. The reduction or elimination of share buyback programs will remove one of the catalysts for stock appreciation that has been used over the past decade. Share buyback programs have helped the equity markets enjoy a reliable buyer of shares as companies could easily borrow money cheaply and then buy back their stock. This type of program will most likely be eliminated for the near future.
1st Source continues to be here for our clients and communities. Recently the 1st Source Foundation announced a series of donations to the United Way of 18 counties across northern Indiana and southwestern Michigan totaling $600,000 to help our communities deal with COVID-19. We are also actively helping businesses, non-profits, and sole proprietors with Payroll Protection Program applications and related funding.
Thank you for your continued efforts to help our communities during this crisis. Be safe and be well.
Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
Considerations for your portfolio

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
fixed income chart
Source: Bloomberg


  • 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.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 2,761.6 -14.03% -3.11%
Dow Jones Industrial Average 23,390.8 -17.48% -9.24%
NASDAQ Composite 8,192.4 -8.38% 3.80%
Russell 2000 (small-cap index) 1,212.0 -27.05% -22.39%
MSCI EAFE (developed intl.) 1,605.1 -20.44% -13.36%
MSCI Emerging Markets 419.8 -20.43% -16.76%
Federal Reserve's Inflation Target
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.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.14% 3.21% 8.03%
B’berg Barclays US Aggregate Bond 1.50% 4.20% 10.50%
B’berg Barclays US Corp.High Yield 8.17% -8.54% -3.55%
B’berg Barclays Municipal Bond 1.91% -0.20% 4.53%
Key Interest Rates
  4/13/20 12/31/19 4/16/15
Federal Funds Target Rate 0-0.25% 1.5-1.75% 0-0.25%
3-Month LIBOR 1.22% 1.91% 0.28%
2-Year U.S. Treasury Note 0.25% 1.57% 0.51%
10-Year U.S. Treasury Note 0.77% 1.92%
Prime Rate 3.25% 4.75% 3.25%
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested
1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.