Market Share Newsletter Vol 2 Issue 14

 

May 19, 2020

data abstract illustration
Market Share logo
Your 1st Source for market information
Thoughtful woman“Uneasy anticipation” explains the mood of investors as states begin to reopen their economies this week and over the next several months. Most business owners, consumers, and government officials seem to share that feeling.
 
As our nation progresses through the pandemic, the growing economic impact is evident in the 30 million Americans that have filed for unemployment over the past six weeks. The weekly trend has started to improve, but each week would be a record on its own if not for the previous week’s report. Over the past week, the fourth stimulus bill replenishing the Payroll Protection Program (PPP) was passed and the Small Business Administration received more applications. The new version of PPP aims to help more of the smallest businesses that have had fewer opportunities to access funding. Additionally, municipalities and hospitals will receive funds for costs associated with COVID-19. As fewer cases of the virus are reported and businesses reopen, the unemployment rate should improve.
 
As 37 states implement customized plans for reopening, there are several large states and regions that remain closed. California and New York, for example, have a combined gross domestic product (GDP) equivalent to 24% of the U.S. GDP. Until those states begin to recover, GDP reports will be poor. The first quarter GDP in the U.S. was down 4.8%, the second quarter will be worse, followed by the third quarter, which is likely to resume economic growth.
 
The Federal Reserve and Congress are working together to put ‘a floor’ under the free-fall economy. Their efforts have helped ease, but not eliminate, the economic pain. Therefore, we still see challenges that will limit the stock market recovery after its historic rally from the lows of March 23rd. It will take time, and potentially lead to more bouts of volatility, until investors can feel more at ease about regional and global economies opening.
 
Thank you for all you are doing to help each other through these times. We are honored to continue to be here for you.
 
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Vice President and Senior Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
ClapsaddleE@1stsource.com
Considerations for your portfolio

The Economy

  • In March, personal income declined by 1.7% and spending declined by 7.5%. This data was not surprising, but the increase in the U.S. savings rate is noteworthy. Household savings as a percentage of disposable personal income increased to 13.1%. This is the largest percentage since November 1981. The U.S. consumers’ willingness and ability to increase and maintain savings will help provide ‘a floor’ for the current economic crisis.
  • TSA checkpoint travel numbers at airports have improved over the past week. There was an increase of 29.7% for the week ending May 4 and an increase of 50.3%. from two weeks ago. Despite these small, notable increases and “green shoots”, the more relative data is not good. TSA checkpoint numbers for the week ending May 4 were only 6.3% of last year’s weekly total from the same week.
  • France reported a first-quarter GDP of -5.8% last week. This is an estimated 4% decline, as household consumption shrank by 6.1%, and capital investment fell by 11.8%. This is the largest drop on record for capital investment.
Economic Data: Recent
  Actual Survey Prior
Initial Jobless Claims
2,578k 2,500k 3,176k
Change in Nonfarm Payrolls -20,537k -22,000k -881k
Unemployment Rate 14.7% 16.0 4.4%
Consumer Price Index (CPI) MoM  -0.8% -0.8% -0.4%
Economic Data: Upcoming
    Survey Prior
Durable Goods Orders   -18.0% -14.7%
New Home Sales   500k 627k
Personal Income -6.5% -2.0%
Personal Spending   -12.1% -7.5%
Federal Reserve's Inflation Target
Source: Bloomberg
 

Equities

  • Walmart reported a 10% increase of first quarter U.S. same-store sales (excluding gasoline) against forecasts of 8.6%. Online sales grew by 74% during the quarter as a result of increased delivery services and grocery pickup orders. Sam’s Club, owned by Walmart, experienced even greater same-store sales as they grew by 12% (excluding gasoline) relative to a 7.8% forecast.
  • Moderna Inc. announced positive results for an experimental vaccine this week that showed an immune response to fight off the current coronavirus. The initial trial included eight healthy volunteers, while phase two will begin soon with as many as 600 patients, according to Moderna. The company’s stock increased by as much as 30% on Monday and they announced today they will be issuing $1.3 billion in stock to fund the vaccine research.
  • JCPenney filed for Chapter 11 bankruptcy on May 15 following the other recent filings by Neiman Marcus and John Varvatos. The company followed up the bankruptcy announcement with the decision to close 240 of their stores, which accounts for 29% of their total stores.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 2,953.9 -7.87% 5.09%
Dow Jones Industrial Average 24,597.4 -13.01% -2.88%
NASDAQ Composite 9,234.8 3.37% 20.00%
Russell 2000 (small-cap index) 1,333.7 -19.64% -12.03%
MSCI EAFE (developed intl.) 1,642.4 -18.18% -9.21%
MSCI Emerging Markets 434.4 -17.66% -5.98%

Fixed Income

  • Jerome Powell, chairperson of the Federal Reserve, stated this past weekend on 60 Minutes that “we’re not out of ammunition by a long shot.” The Federal Reserve has $2.6 trillion available in various forms to stimulate the economy and has only used approximately $100 million so far. The Fed has been clear that they will do everything possible to keep the country from moving into a depression.
  • In an unprecedented moment in global bonds this week, Germany and France agreed to support a stimulus package that would be financed through bonds issued via the European Union. The proposed amount of issuance is 500 billion euros, but still needs the other EU member states to agree.
  • The yield on U.S. Treasuries continues to maintain positive yields across all maturities, but the yield curves (2-years to 30-year bonds) in both Germany and Switzerland are entirely negative.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.01% 3.88% 7.78%
B’berg Barclays US Aggregate Bond 1.47% 4.53% 9.73%
B’berg Barclays US Corp.High Yield 7.89% -7.88% -2.65%
B’berg Barclays Municipal Bond 1.85% 0.08% 3.24%
Key Interest Rates
  5/18/20 12/31/19 5/21/15
Federal Funds Target Rate 0-0.25% 1.5-1.75% 0-0.25%
3-Month LIBOR 0.38% 1.91% 0.28%
2-Year U.S. Treasury Note 0.18% 1.57% 0.61%
10-Year U.S. Treasury Note 0.73% 1.92%
2.29%
Prime Rate 3.25% 4.75% 3.25%
economy chart

 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:
  • 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

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.