With heightened market volatility and significant news flow, Ellwood wanted to share brief, high-level observations on the investment environment. If you have any questions, please do not hesitate to reach out to your consulting team.
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The U.S. central bank continued ramping up its balance sheet, with total assets ending the week at $6.6 trillion. The Fed’s weekly purchases of Treasury and mortgage-backed securities ramped up quickly during the end of March but has since decelerated over the first three weeks of April.1
The U.S. approved a fourth stimulus package totaling $484 billion, including $384 billion expansion of the Small Business Administration’s lending programs (including the Paycheck Protection Program) and $100 billion to support healthcare providers and COVID-19 testing.2
U.S. initial unemployment claims reached 26.5 million over the five-week period ending April 18, although the pace has decelerated each week since the 6.9 million peak reached over the week ending March 28.3
The equity market held its gains over the past couple weeks as volatility continues to decrease from the historic levels witnessed in March. As of April 24, the S&P 500 remains 16% below its February high; however, the market has rallied +27% from its March lows. Often times market reversals such as these result in a change of market leadership; however, quality and momentum factors have continued their relative outperformance, while value and small cap have lagged.4
U.S. investment grade corporate spreads ended the week at 2.09%, representing a 63 basis point decline for the month of April, and significantly below the March 23 peak of 3.73%. High yield bond spreads widened over the past week but ended at 7.75%—105 basis points below the start of April and well below their 11.0% peak in March.5
WTI Crude’s collapse (-26% month-to-date) was the story of April, but interestingly both energy equities (+19% month-to-date) and MLPs (+35% month-to-date) have endured quite strongly. The broad upswing in U.S. equities (+10% month-to-date) was consistent with credit sectors rise throughout the month.6
While the U.S. dollar has been generally strong against foreign currencies in 2020 (especially economies with heavy oil exposure), performance is mixed for April. The U.S. dollar has bounced around throughout the month, appreciating versus European and Latin American currencies while depreciating against the Australian dollar, Canadian dollar, and Asian currencies.7
Commercial paper spreads continued to narrow, with AA nonfinancial and asset-backed spreads ending at 22 basis points and 30 basis points, respectively. At the beginning of 2020, spreads were at 6 basis points and 15 basis points, respectively.8
1. Board of Governors of the Federal Reserve System
2. Library of Congress, Congressional Budget Office, The Japan Times https://bit.ly/2W5G3Lf
3. U.S. Department of Labor
4. S&P Dow Jones Indices, MSCI
5. Bloomberg Finance, L.P.
6. Bloomberg Finance, L.P., S&P Dow Jones Indices, Alerian
8. Board of Governors of the Federal Reserve System, U.S. Department of the Treasury
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Published April 26, 2020.