Market Update 4-20-2020 – Epic Battle

Coronavirus (COVID-19) continues to dominate world news. Markets took a beating in March, but with the support of a massive monetary and fiscal response around the world, some markets have started to recover.

Presently, there is an epic battle going on between monetary and fiscal stimulus on one side and overwhelming negative economic data and declining corporate profits on the other.  While the recent rally off the lows has been extraordinary and encouraging, I am troubled that the sectors leading the recovery are traditionally defensive sectors like healthcare, utilities and real estate.  Optimally, cyclical sectors like industrials, financials, and consumer discretionary would be leading the recovery. So far, these key sectors, along with Small Cap stocks, continue to underperform.

While we believe the stock market is continuing through its four-step bottoming process (oversold, rally, retest, breadth thrust) there has been enough evidence in certain areas to move to a more neutral position on stocks. The message within fixed income sectors is similar, due to unprecedented Federal Reserve intervention, so we moving to a neutral position in bonds. These indicator improvements we’ve seen do not mean a retest is off the table. In fact, historical tendencies and leadership trends support a retest. Ultimately, the market direction depends on what happens with the coronavirus.

Chart of the week: A prolonged economic recovery may signal further volatility ahead

  • The Conference Board put together a range of potential scenarios by which investors may think about an eventual U.S. economic recovery.
  • According to their analysis, U.S. GDP would decline by -3.6% in a best-case scenario that includes a May reboot and a V-shaped recovery. In a worst-case scenario, the U.S. economic growth would decline -6.6% in 2020, or more than twice the GDP decline of 2009.
  • My outlook is along the Fall recovery line with a steeper decline in the economy.  I just pray we don’t get a virus resurgence in the fall as illustrated below.

Market_Update_4.20.2020

Hoping you are safe and well.

Sources:  Conference Board, Ned Davis Research, Dwyer Strategy

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s