Market Share Newsletter Vol 2 Issue 12

April 28, 2020


Your 1st Source for market information

The focus on the consumer is important in any economic recovery.
U.S. consumer spending is responsible for approximately 70% of our gross
domestic product (GDP). Consumer spending in the U.S. comprises a greater
portion of GDP than in other developed economies. The past five weeks have not
been good for consumers, as over 26 million have filed for unemployment
insurance. Many of those have been furloughed versus laid off. Furloughed
employees typically return to their jobs and continue to accrue benefits during
the time off. Layoffs are permanent reductions of employment by a company.
Furloughs can last weeks to months but it allows employers to quickly increase
business as those furloughed are able to return to work much quicker. The
difference is important at this time, although to those impacted it is of
little solace.
The first step for consumers is to see the furloughs ending, then
there should be some improvement, albeit uneven, over the next few weeks. As
consumers go back to work, they will likely work to replenish their depleted
bank accounts before increasing their spending. The second step for consumers (even
if they have earnings) is to decide if they are ready to go out. There appears
to be a portion of consumers that will wait for much better news on COVID-19
before they venture out. The mindset of consumers will be closely followed as
part of the recovery story.
Consumer behavior will be one of the factors that investors will
watch in the coming months. While the S&P 500 has risen nicely since March
23, there will likely be continued volatility and bigger drops in the equity
markets. As the country reopens, it will take two to four weeks to determine if
the number of COVID-19 cases increases. If cases do increase, at what rate? What
will the governments’ response be and how will it stress our healthcare
capacity? As you can see, there are many issues that might keep the economy from
a robust recovery.
As we monitor these developments, we are cautious in buying
large positions in equities or equity funds. We have done some limited buying over
the past couple of weeks as we analyze and wait to see more developments.
While we are making sure to be physically distant to keep us all
safe, it doesn’t mean we are distant in any other way. Your 1st Source teams
continue to be here for you. Whether it be assisting you with the payroll
protection program, or just checking in with a call or email, we want to know
how you are doing and how we can help. Please continue to let us know your
questions and concerns, we are in this together.
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
- Total auto sales in the United States are expected to decline to an annual pace of 6.5 million during the month of April (16.8 million in February). The slowest pace of auto sales on record is presently 8.8 million from December 1981. We expect significant pent-up demand for auto buying and possibly a government program reminiscent to the Car Allowance Rebate System in 2009 when the economy can fully reopen.
- The Dallas Fed Manufacturing index declined to its lowest level on record in April. Despite the index reporting a slightly better than expected result, virtually every component of the index was well into negative territory as the energy industry has taken a major toll on manufacturing in Texas.
- Initial jobless claims have now exceeded 26 million over the past five weeks for the week ending April 18. The forecasted rate of unemployment is 16% as of the end of this month.
- Despite some of the bad news in U.S. meat packing plants and the concerns over supply chains, both corn and soybeans have been planted and have emerged at a faster rate than last year based on a recent USDA report. The same can be stated for most major U.S. crop progress through April 26.
Economic Data: Recent | |||
---|---|---|---|
Actual | Survey | Prior | |
Initial Jobless Claims
|
4427k | 4500k | 5245k |
Markit US Manufacturing PMI | 36.9 | 35.0 | 48.5 |
New Home Sales | 627k | 642k | 765k |
Durable Goods Orders | -14.4% | -12.0% | 1.2% |
Economic Data: Upcoming | |||
Survey | Prior | ||
Initial Jobless Claims | 3500k | 4427k | |
GDP Annualized QoQ (first quarter) | -3.9% | 2.1% | |
Personal Consumption (first quarter) | -3.5% | 1.8% | |
Total Vehicle Sales | 6.50m | 11.37m |
Equities
- A diverse group of companies continue to report quarterly results with very mixed numbers. Pepsi beat earnings estimates by 3.9% and they increased by 10.3% over the first quarter in 2019 (YoY). Sales also beat estimates by 5.2% and increased YoY by 7.7%. Caterpillar reported very weak quarterly results but stated China has “definitely” recovered from their economic lows in February.
- According to the Stoxx Europe 600 index, stocks in Europe reached their highest level since March 11. A few large companies in Europe have reported better than expected quarterly results and the spread of the coronavirus has continued to slow throughout the continent. The year-to-date performance has been led by health care, technology, and personal and household goods.
Equity Index Values and Total Returns | |||
---|---|---|---|
Value | YTD | 1-Year | |
S&P 500 | 2,878.5 | -10.36% | 0.78% |
Dow Jones Industrial Average | 24,133.8 | -14.81% | -5.86% |
NASDAQ Composite | 8,730.2 | -2.36% | 8.88% |
Russell 2000 (small-cap index) | 1,281.9 | -22.83% | -16.18% |
MSCI EAFE (developed intl.) | 1,622.6 | -19.44% | -12.44% |
MSCI Emerging Markets | 425.8 | -19.28% | -14.73% |

Source: Bloomberg
Fixed Income
- High yield bonds rose to their highest yield of 8.41% in more than two weeks as the energy sector continues its monumental decline. Junk-bond issuers have raised capital through the debt markets the past few weeks as Delta borrowed $3.5 billion, Carnival Cruise $6 billion, Ford $8 billion, and The Gap borrowed $2.25 billion.
- The Bank of Japan (BOJ) announced on Monday that they will now buy an unlimited amount of bonds to keep borrowing costs low—the buying will include corporate bonds and commercial paper. The BOJ’s goal is to keep long-term interest rates around its 0% target.
Fixed Income Index Yields & Total Returns | |||
---|---|---|---|
Yield | YTD | 1-Year | |
B’berg Barclays Inter Govt./Credit | 1.06% | 3.55% | 7.95% |
B’berg Barclays US Aggregate Bond | 1.43% | 4.69% | 10.54% |
B’berg Barclays US Corp.High Yield | 8.41% | -9.60% | -4.89% |
B’berg Barclays Municipal Bond | 2.12% | -1.20% | 2.95% |
Key Interest Rates | |||
4/27/20 | 12/31/19 | 4/30/15 | |
Federal Funds Target Rate | 0-0.25% | 1.5-1.75% | 0-0.25% |
3-Month LIBOR | 0.89% | 1.91% | 0.28% |
2-Year U.S. Treasury Note | 0.22% | 1.57% | 0.56% |
10-Year U.S. Treasury Note | 0.66% | 1.92% |
2%
|
Prime Rate | 3.25% | 4.75% | 3.25% |

Source: Bloomberg
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