The Best And The Worst

May 3, 2020

While we have recently seen some of the worst economic data prints of our careers, April 2020 was one of the best months for stocks in over three decades. This serves as a great reminder that the stock market is a forward-looking machine and it seems the market believes that within the next year or two the FED backstop and the fiscal stimulus will have things running smoothly. For now, though, the economic data remains pretty scary. 

I won’t bore you with all the numbers, but here is a quick snapshot of some of the key economic data that has come out as a result of the COVID -19 shutdown in the United States. Industrial production that measures US Factory output suffered its largest monthly drop since WWII. The Empire State Manufacturing Surve plunged to a record low.1 

Total retail sales as measured by month over month change fell by the most EVER in March, and April is estimated to be much worse. Continuing Jobless Claims skyrocketed to over 17.992 million exceeding the highest reading ever by a long shot.2 Gross Domestic Product (GDP) declined 4.8% in 1Q20, and April data points toward possible larger declines for 2Q20.

Personal spending as measured in the US Personal Consumption Expenditures, which accounts for approximately two thirds of U.S. GDP, fell by 7.5% in March.4 This was the largest monthly decline in personal consumption in 50 years and current sentiment appears to believe that April data will print even lower.

US Pending Home Sales fell 20.8% for the month of March, and with April data posting in May, we will see if this persists.5 US homebuilder sentiment had its largest decline in the 30-year history of the NAHB Housing Market Index.6 

Around April 20th WTI Crude Oil futures fell deep into negative territory due to extreme contango (i.e. when the future price of a commodity is higher than the spot, or current, price) as well as rapidly diminishing available oil storage options. Thus, May contract holders--desperate to unload oil commitments that were 1) less valuable than future delivery and 2) nearly impossible to store--were paying buyers to take these contracts off their hands. That is unheard of. I could go on with this list, but I think you get my point.

There really is no way to sugar coat the economic picture being painted right now. However, traders seem to have an abundance of confidence in the Fed backstop. Federal Reserve stimulus, balance sheet expansion, and monetary policy has helped provide a sturdy backstop for risk assets throughout the 11-year bull market run that ended earlier this year. 

We believe the renewed, and substantially larger, back stop the FED has put in place to support financial markets during the COVID 19 crisis combined with main street stimulus efforts from the Treasury Department and optimism around potential treatment options appears to have calmed trader’s nerves.

In our opinion, these developments also appear to have given market participants confidence that once this immediate crisis is averted things will return to normal. Of course, this remains to be seen, but for now stocks have been on a historic climb. Within the last 10 weeks we have seen stocks fall into Bear market territory (the fastest decline ever), and we have seen stocks climb back into Bull market territory (The fastest ever recovery from a 52-week low).


The Fed stated it is planning on expanding the Paycheck Protection Program as part of the main street lending program. Some states are beginning to open back up, but we all know that this will be a process. We can’t snap our fingers and immediately go back to business as usual. We do, however, have some favorable things going for us at the moment. 

We have a well-capitalized banking system as well as massively accommodative monetary policy and fiscal stimulus. Positive data is coming out about treatment options as those drugs continue to be tested.  There is light at the end of the tunnel. The virus will not impact our economy forever, but the ride over the next several months could be very bumpy as good and bad news may result in some wild swings in the financial markets. Maintaining an eye on risk might be well served in the near term as the risk and uncertainty of a second wave of the pandemic is weighed by market participants.


The rapid rally for stocks has our short term technical measures back into bullish territory, but the technical damage that was inflicted by the rapid bear market declines in late February and most of March is still taking its toll on our longer term technical measures which means we are not out of the woods just yet. We will continue to follow the process we have in place as we navigate these unprecedented times together.  

Brad Thompson, CFA
Chief Investment Officer

1 ; Accessed May 1, 2020

2 ; Accessed May 1, 2020

3 ; Accessed May 1, 2020

4 ; Accessed May 1, 2020

5 ; Published April 29, 2020; Accessed May 1, 2020

6 ; Accessed May 1, 2020

Stadion defines a bull market as a time when the market indices rise at least 20%.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.

West Texas Intermediate (WTI) crude oil is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. The results of this survey, which measures market sentiment and mood, are used to compose the NY  Empire State Index.

Contango is a situation where the futures price of a commodity is higher than the spot price. Contango usually occurs when an asset price is expected to rise over time.

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. It is administered by the U.S. Small Business Administration.

There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.

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