Week from 23 to 29 March 2020
March was an absolute nightmare for investors. However, the last week of the month was a silver lining in the dark cloud of the coronavirus crisis. After the market meltdown, investors took a deep breath on hopes that the $2.2 trillion fiscal stimulus package in the U.S. will ensure that a widely-expected recession can be short-lived.
The S&P500 gained 10.26% and the Nasdaq Composite added 9.05%. Same trend over the globe (MSCI World up 10.67%) though China did not keep pace with the rest of the world (Shanghai Composite up 0.97%). The strongest rebound eventually came from Tokyo with the benchmark Nikkei225 shooting up more than 2,800 points to end well above the 19,000 line for the first time in two weeks (19,389, up 17.14% WTD).
The hardest-hit sectors last week outperformed the market this time, more specifically utilities (+17.68%), industrials (+15.43%), real estate (+15.41%), and energy too (+12.18%), in spite of another decline in oil prices (WTI crude down -4.10%, fifth week in a row resulting in a 58% peak-to-valley drawdown). Communication services (+5.50%), consumer staples (+6.54%), and healthcare (+8.08%) lagged behind.
As the Fed has now moved to ensure the flow of credit to U.S. companies, broadly sentiment was improving on the CDX and iTraxx indices, hence significantly tighter spreads in North America and Europe. Investment grade bonds and high yield bonds therefore jumped 3.81% and 6.92% respectively in the U.S.
Does this positive news flow mean we enter bull-market territory in spite of the rising death toll and disruption to public life across the U.S., not to mention the record jump in jobless claims +(3.3 million over the week)?
It would be very risky to infer from the recent rally that the disaster is behind us. Among safe-haven assets, it is worth noting that gold resumes its upward trend (+9.46% WTD, i.e. best week since September 2008) and the 10-year U.S. Treasury yield has just slid from 0.92% to 0.72%, thereby reflecting signs of market stress. Remember that the VIX index is still hanging in the mid 60s. The United States is now the world leader in the number of known infections, surpassing China, Italy and Spain and the worst is yet to come. Now governments and central banks have played all their cards, there will likely be nothing else to prop stock markets up until the number of newly infected patients starts to decrease.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-03-27/global