Market Share Newsletter Vol 2 Issue 10

April 14, 2020


Your 1st Source for market information

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.
GiffordP@1stsource.com
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
GiffordP@1stsource.com
Erik Clapsaddle, CFA,
CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
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 |

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.
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% |

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% |
1.9%
|
Prime Rate | 3.25% | 4.75% | 3.25% |
DISCLOSURES
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:
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:
- Not insured by the FDIC or any Federal Government Agency
- 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