Folks,

First, I want to wish you a happy Passover and Easter.

Everything about the last few months have been historic.  The Covid-19 is a crisis like no other we have seen in our lifetimes. In the financial markets we continue to see extreme volatility, both up and down, across most asset classes.  We have also seen unprecedented actions by governments and central banks in an effort to mitigate the economic and financial damage from dealing with the virus.

Since the low point in the S&P 500 on March 23^rd, we have seen a relief rally, then another decline, and another relief rally this week.  The bounce of the low has exceeded what history suggested and has only been exceeded by a relief rally of 24% coming off the late 2008 low, which lasted over a month but ultimately led to a lower low in March 2009.  The drop from record levels in February 2020 was historic in both degree and speed and so too has been the relief rally. The broad stock market remains some 21% below the February 2020 high.

Our game plan was formed based on the way the market declined and how it tracked previous serious economic slowdowns such as 1987 and 2008/2009. So the obvious question is whether we are sticking with our game plan anticipating a retest of the low before this is all over.

What are we still worried about?

1. As of this morning, some 16 Million American’s filed for unemployment – that’s over 10% of all jobs in America lost.  That number will continue to climb over the next several weeks. How many jobs will be lost permanently, post-Covid 19, is an unknown.
2. Small businesses have yet to get needed money from the government support programs.  Small businesses account for approximately 64% of all employment in the US.  How many of these businesses close permanently?  Another unknown.
3. Almost 90% of the country is still in a “shelter-in-place” status through the end of April. When will that start to change?
4. The economic shutdown was so swift that the impact has not been accurately reflected in economic report yet.
5. Our contacts in the mortgage market suggests extreme stress in both the residential and commercial mortgages due to forbearance requests.
6. Our contacts in the bond markets report that while the actions of the Federal Reserve has led to improvement, there is still significant stress in the credit market.

We need to see significant improvement in the above factors before overriding our game plan.  So at this point we are sticking to our game plan and would rather wait to adopt a more offensive position once the market pulls back toward the late March level.

Jim

Sources: Dwyer Strategy, Bespoke Investment Group

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