In lieu of our usual Weekly Bulletin, we are publishing special reports to discuss the market reaction to evolving news on the coronavirus outbreak. We would stress the following observations as developments continue to unfold.

Stocks continued climbing the coronavirus wall of worry last week, focusing on the reopening green shoots and looking past weak current economic and labor market data. All 50 states are open or reopening and this is producing economic green shoots including:

      1. Early signs of labor market stability: Temporary employment indicators have started rising and while weekly jobless claims are still at historically high levels, they are moving significantly lower from the peak. These labor market indicators should make further gains as the reopening process unfolds.
      2. Weekly measures of consumer comfort have stabilized and are now moving higher. Importantly, they stabilized at higher levels than after the financial crisis of 2008. Consumer balance sheets were in good shape going into this crisis—debt and interest payments as a percent of income was relatively low while the savings rate was high (13% in March). The generous unemployment benefits and stimulus checks are also supporting consumer confidence.
      3. Housing activity is improving, highlighted by the 40% increase in mortgage purchase applications, back into their pre-crisis range. Consumers comfortable enough to buy homes again supports the rising confidence readings mentioned above.
      4. Other economic data is showing that May, while still weak, has moved off the April lows. Business surveys, auto sales,hotel occupancy, and even TSA checkpoint data are showing improvement.
      5. Global economic data is also showing green shoots. Preliminary May business surveys show that as they reopen, European economies are improving. In addition, German investor expectations rose sharply in May, to the highest level since 2015/2016.Germany and France are both in support of an EU recovery fund which should further support Europe’s recovery.
      6. China (first in and first out of the crisis) continues to show improvement with higher small business confidence,increasing oil demand, higher auto sales, and improving industrial production. Meanwhile, Taiwan’s export orders are improving and are important because they have a strong correlation with global tech activity, and in turn, global growth.
      7. Higher copper and lumber prices and lower corporate bond yields are consistent with the green shoots mentioned above.

A major reason for this potential economic recovery is the massive economic stimulus that is being applied on a global basis. Since January 16th, the very beginning of the COVID-19 outbreak, there have been 71 central bank interest rate cuts, with India the latest last week. Estimates show global monetary and fiscal stimulus is now up to a massive 25% of Global GDP. The U.S. is providing the most support with fiscal measures (tax cuts, business grants, and checks to individuals) now up to $3.3 trillion (15% of GDP) while the Federal Reserve is providing trillions in monetary stimulus. Critically, U.S. and global authorities have strongly signaled additional support as required to ensure an economic recovery takes place.

All of this suggests that the economic recovery we expect in the back half of this year is slowly unfolding. While we expect the second quarter to mark the low in economic performance, this is dependent on the highly uncertain path of the virus. We continue to recommend conservative portfolios that favor Technology and the defensive Health Care sectors.

Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment.

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis.


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