by Connor Darrell CFA, Assistant Vice President – Head of Investments
Last week brought a continuation of recent trends, where market performance seemed to diverge meaningfully from underlying economic and market fundamentals. U.S. equities ended the week over three percent higher, while the bond market posted small losses. Oil prices built upon the prior week’s gains, rising by over $5 per barrel as countries around the globe continue to take steps toward reopening their economies. However, oil prices remain extremely low compared to historical norms.

The most impactful market news last week was the release of April’s nonfarm payrolls report, which provided a glimpse into the severity of the economic damage wrought by the coronavirus pandemic. The Bureau of Labor Statistics reported that 20.5 million jobs were lost in April, pushing the unemployment rate to 14.7%, the highest since the World War II era. Adding to the pain was a footnote in the report which suggested that the unemployment rate would have been as high as 19.7% if certain workers were classified differently in the data. Job losses were concentrated (but not confined) in industries most affected by social distancing measures, such as hospitality, travel, and retail. No matter how the data is sliced, the impacts of the pandemic on labor markets has been incredible.

However, while economic data and stock market returns do not necessarily measure the same thing, they are undoubtedly closely related, and many investors are struggling to understand the dynamics that have led to the divergence we have observed in recent weeks. Some of this is likely due to the differences in what constitutes the building blocks of the labor markets/GDP, compared to the composition of corporate earnings as measured by constituents in the S&P 500 index. The most impacted sectors of the economy make up a significantly larger component of the employment picture than they do of the S&P 500. Additionally, stock markets tend to reflect forward expectations, while economic data is a measure of the past and present. Taken together, this suggests that while the economic toll has been extremely high, markets anticipate the future to be better.

As we move forward, markets will likely continue to remain hyper-focused on new information that helps to provide clarity on how soon and how expansively economies can resume some semblance of normality. For now, there seems to be some optimism surrounding the re-opening of some economies in Europe and Asia, which have not seen extreme resurgences in the prevalence of COVID-19.  Markets will also be watching the medical community closely, where the White House has reported that it has “fast tracked” 14 potential vaccine candidates in the hopes that one will prove to be effective and can be made available by early 2021. 

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Stocks and bonds in the U.S. were largely unchanged week over week, although international equities in both developed and emerging markets managed to generate relatively robust returns as efforts to reopen economies continued. Investors also got their first look at a very ugly Q1 GDP figure, which came in at its lowest level since the Global Financial Crisis. Q1 GDP, which declined at an annualized 4.8% rate despite containing over two months of relatively stable economic activity, is expected to pale in comparison to the contraction anticipated for Q2. Though estimates are extremely difficult at this point in time, some economists are calling for Q2 annualized declines of up to 40% (although these estimates vary wildly depending upon the source). Unemployment data is expected to be equally bad, with some calling for that figure to reach as high as 20%.

Three of the world’s major central banks (the Federal Reserve, the ECB, and the Bank of Japan) held press conferences last week and announced continued adjustments to their respective policy initiatives. “Flexibility” was the theme of the week, as bankers hinted that they would be looking to do all that is necessary to preserve liquidity in markets and keep capital flowing to where it is needed. In the U.S., Fed Chairman Jerome Powell announced a further expansion of the bank’s “main street lending program,” making it available to more businesses and lowering the minimum loan size.

Also offsetting some of the market’s ire over the economic data were reports that an antiviral drug developed by Gilead Sciences was showing some promise in clinical trials. The preliminary clinical trials for Remdesivir (as the drug is called) were discussed in detail by Dr. Anthony Fauci during his daily press conferences last week. Dr. Fauci’s apparent confidence in the drug’s promise was quickly followed by announcements that the FDA would likely fast track its path to broader use in severe cases of COVID-19. It is important to note that the drug does not represent a cure for the disease, but it may help to improve patient outcomes. As the scientific community around the world remains fully mobilized, we expect that this will not be the last of promising developments with respect to our ability to fight the virus. However, an effective and well distributed vaccine will likely be required before we can finally put the COVID-19 pandemic behind us.