Market Insights 3/19/2020

U.S. equities finished a choppy session on a high note after multiple global central banks, including the Fed, and governments announced additional measures to combat the economic impact of the COVID-19 pandemic.

The Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) initiated additional programs to help calm nerves in the financial markets, while the Senate passed a U.S. fiscal package, with reports that more plans may be in the offing.

Treasury yields pulled back from a recent rise, and the U.S. dollar continued to rally, while crude oil prices bounced off historic lows, and gold was modestly lower. In notable equity news, the Big-Three automakers announced that they will close all U.S. factories until the end of March, affecting up to 150,000 union workers.

Europe finished solidly higher, getting a boost from the latest announcements in the region, but Asia was lower.

The Markets…

The Dow Jones Industrial Average gained 188 points (1.0%) to 20,087

The S&P 500 Index rose 11 points (0.5%) to 2,409

The Nasdaq Composite advanced 161 points (2.3%) to 7,151

In heavy volume, 1.7 billion shares were traded on the NYSE and 4.7 billion shares changed hands on the NASDAQ

WTI crude oil jumped $5.08 to $25.91 per barrel and wholesale gasoline added $0.05 to $0.69 per gallon

The Bloomberg gold spot price declined $6.44 to $1,479.61 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rallied 1.6% to 102.76

The continued uncertainty surrounding the spreading of the COVID-19 (coronavirus) pandemic has touched many facets of the economy and the basic standard of living across the globe. U.S. cities and countries overseas continue to ramp up measures to combat the disease, including social distancing and some lockdowns. Travel restrictions across the world remain in place, businesses and schools have been shuttered, the New York Stock Exchange said it will temporarily close its iconic trading floor and move fully to electronic trading, and the list of major events that have been canceled as a result continues to expand.

In an effort to ease the strain many Americans are facing amid the extraordinary measures taken to combat the COVID-19 outbreak, the U.S. Senate overwhelmingly passed legislation, which was quickly signed by President Trump, that will provide billions of dollars for free testing, paid sick leave and additional spending. In addition, Congress and the White House are discussing additional measures that could add up to $1.3 trillion in stimulus, which may include direct payments to taxpayers, aid for businesses and loan guarantees.

The “Big-Three” automakers announced plans to close all U.S. automobile factories amid the coronavirus crisis. General Motors Company, Ford Motor Company and Fiat Chrysler Automobiles NV all said the facilities will remain shuttered through the end of March, while they will evaluate the situation at the end of the hiatus. The closures would affect up to 150,000 union workers, according to the United Auto Workers.

Leading Index ticks higher, jobless claims jump and regional manufacturing plummets

The Conference Board’s Index of Leading Economic Indicators (LEI) for February ticked 0.1% higher month-over-month (m/m), matching the Bloomberg projection, while January’s figure was revised slightly lower to a 0.7% increase. A senior official at the agency indicated that, “The U.S. LEI rose slightly in February, but it doesn’t reflect the impact of the COVID-19 pandemic which began to hit the U.S. economy in full by early March. The slight gain in February came only from half of the LEI components.

Weekly initial jobless claims rose by 70,000 to 281,000, above the Bloomberg estimate of 220,000 and the highest level since September of 2017, with the prior week’s figure being unrevised at 211,000. The four-week moving average increased by 16,500 to 232,250, while continuing claims rose by 2,000 to 1,701,000, south of estimates of 1,738,000. The report is one of the few recent economic reports that includes data during the COVID-19 crisis.

Treasuries gained ground, as the yield on the 2-year note was down 4 basis points at 0.49%, the yield on the 10-year note fell 9 bps to 1.17% and the 30-year bond rate lost 8 bps to 1.81%.

Europe higher following ECB and BoE stimulus announcements, Asia lower

European equities finished higher following the announcements from the European Central Bank (ECB) and the Bank of England (BoE) of monetary policy fiscal stimulus initiatives. The ECB said it will launch a new “Pandemic Emergency Purchase Programme” to help aid the European economy. The stimulus package includes the use of 750 billion euros ($820 billion) to purchase financial assets, both private and public sector bonds, as well as some commercial paper, by year end. As well, the BoE announced that it cut its benchmark interest rate by 15 bps to 0.10% and will increase its bond-buying program by 200 billion pounds.

The euro was lower versus the U.S. dollar, while the British pound gained ground against the greenback following the BoE’s announcement, while bond yields in the region were mixed—with notable declines in Italy and Spain that have seen rates spike as of late.

The U.K. FTSE 100 Index was up 1.8%, France’s CAC-40 Index increased 2.7%, Germany’s DAX Index rose 2.4%, Spain’s IBEX 35 Index was 2.0% higher, Italy’s FTSE MIB Index advanced 2.3% and Switzerland’s Swiss Market Index rallied 5.3%.

Stocks in Asia finished with widespread losses, led by an 8.4% plunge in South Korea’s Kospi Index, as the uncertainty regarding the economic impact of the spreading coronavirus pandemic remained the main catalyst.

Australia’s S&P/ASX 200 Index finished 3.4% lower after being higher early on following an unexpected decline in the nation’s unemployment rate, while India’s S&P BSE Sensex 30 Index declined 2.0%, China’s Shanghai Composite Index lost 1.0%, and the Hong Kong Hang Seng Index moved 2.6% to the downside.