With heightened market volatility and significant news flow over the past week, Ellwood wanted to share brief, high-level observations on the investment environment from Ellwood's Capital Markets Committee.
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On April 9, the Federal Reserve announced further actions to provide $2.3 trillion of support of the U.S. economy, including lending to small- and mid-sized companies and municipalities, and increasing the size and scope of existing asset-backed securities and corporate bond programs. Notably, the corporate bond program was expanded to include high yield securities.1
In the U.S., unemployment claims of 6.6 million were filed during the week ending April 4, bringing the three week total to 16.8 million—a level eight times higher than the prior three-week record of 2.0 million in 1982.2
In six of the first seven trading days of April, the S&P 500 changed by at least 1.4% each trading day. Under normal circumstances, this level of volatility would be extreme, but it actually represents the calmest week in the equity markets since the last week of February.3
Corporate bond spreads continued its tightening trend that started on March 23 when the Fed announced its support of corporate credit markets, with investment grade bond spreads falling 141 basis points and high yield spreads dropping 315 basis points.4
Oil prices jumped 38% in the first few days of April on reports that Russia and Saudi Arabia could be close to agreeing to a production cut. This provided support to the beleaguered energy sector, which led equities higher with a quarter-to-date return of 16%.5
While the US dollar has been generally strong against foreign currencies—especially economies with heavy oil exposure—it depreciated against nearly all currencies in April. For 2020, the dollar is positive relative to nearly all major currencies with two notable exceptions being the Swiss franc and Japanese yen, both commonly considered safe-haven assets.6
After commercial paper experienced massive spread widening in mid-to-late March, sentiment finally improved and spreads tightened in April with support from the Federal Reserve’s Commercial Paper Funding Facility and Money Market Mutual Fund Liquidity Facility.7
1. Board of Governors of the Federal Reserve System
2. US Department of Labor
3. S&P Dow Jones Indices
4. Board of Governors of the Federal Reserve System, Bloomberg Finance, LP
5. U.S. Energy Information Administration (April 2020), S&P Dow Jones Indices, Reuters
7. Board of Governors of the Federal Reserve System, U.S. Department of the Treasury
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Published April 14, 2020.