Market Insights 3/26/2020

U.S. stocks recorded the first three-day winning streak since the COVID-19 pandemic began to decisively disrupt the global markets.

Equities reversed to the upside in pre-market trading shortly after data showed a spike to a record high in jobless claims, suggesting a bigger surge may have been feared. The resiliency was also likely fueled by the massive fiscal and monetary policy measures from Congress and the Federal Reserve recently, possibly cooling concerns about the increased likelihood of a sharp economic downturn as the support could shorten the duration of the damage.

Last night, the Senate approved a $2.0 trillion “phase three” fiscal package that is heading for the House as soon as tomorrow, while the Fed earlier this week unloaded a drastic amount of monetary policy support. Treasury yields were lower, crude oil prices fell and the U.S. dollar continued to give back a recent jump, while gold was higher.

The Markets…

The Dow Jones Industrial Average jumped 1,352 points (6.4%) to 22,552

The S&P 500 Index surged 155 points (6.2%) to 2,630 and

The Nasdaq Composite rallied 413 points (5.6%) to 7,798

In heavy volume 1.6 billion shares were traded on the NYSE and 3.9 billion shares changed hands on the NASDAQ

WTI crude oil dropped $1.89 to $22.60 per barrel and wholesale gasoline was off $0.01 at $0.60 per gallon

The Bloomberg gold spot price advanced $13.97 to $1,630.86 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—tumbled 1.7% to 99.31

Jobless claims surge amid the coronavirus pandemic, Q4 GDP unrevised

Weekly initial jobless claims spiked by 3,001,000 to a record of 3,283,000, well above the Bloomberg estimate of 1,700,000, from the prior week’s upwardly-revised 282,000 level. The four-week moving average jumped by 765,750 to 998,250, while continuing claims rose by 101,000 to 1,803,000, north of estimates of 1,791,000. A dramatic rise in unemployment claims was anticipated, given the unfolding COVID-19 crisis.

The final look (of three) at Q4 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.1%, unrevised from the first revision to match the Bloomberg consensus forecast and Q3′s rate. Personal consumption was upwardly revised to a 1.8% increase, versus expectations for it to remain at a 1.7% gain. Q3 consumption was unrevised at a 3.2% rise.

On inflation, the GDP Price Index was unrevised at a 1.3% increase, matching estimates, while the core PCE Index, which excludes food and energy, was adjusted to a 1.3% increase, versus forecasts to be unrevised at a 1.2% gain.

Treasuries rose as the extreme volatility continued, with the markets grappling with the COVID-19 pandemic uncertainty—and the coinciding spike in unemployment—the passing of the “phase three” fiscal deal and the Fed’s record stimulus measures. The yield on the 2-year note declined 5 basis points (bps) to 0.29%, the yield on the 10-year note fell 4 bps to 0.83%, and the 30-year bond dropped 3 bps to 1.42%.

Tomorrow, the economic week will conclude with a couple reads on activity and sentiment from the all-important U.S. consumer. February personal income and spending will get the ball rolling, expected to show the former rose 0.4% m/m, registering a seventh-consecutive monthly increase, and the latter post a second-straight month of 0.2% growth. The report will be followed by the final University of Michigan Consumer Sentiment Index for March, forecasted to be revised lower to an eight-month low of 90.0, and down solidly from the 101.0 level recorded in February.

Asia mixed, Europe reverses higher

European equities overcame early losses and finished to the upside, aided by the U.S. markets rallying in the face of the highly-anticipated spike in unemployment claims. The resiliency seemed to come partly due to relief regarding the flood of fiscal and monetary policy measures deployed by global central banks and governments, led by the U.S.

The Bank of England today left its benchmark interest rate and bond purchasing program unchanged after two emergency meetings this month led to a record low interest rate and increased bond purchases. The euro and British pound gained ground on the U.S. dollar, and bond yields in the region fell.

The U.K. FTSE 100 Index was up 1.5%, France’s CAC-40 Index rallied 2.5%, Germany’s DAX Index and Spain’s IBEX 35 Index rose 1.3%, Italy’s FTSE MIB Index rose 0.7%, and Switzerland’s Swiss Market Index moved 2.4% to the upside.

Stocks in Asia finished mixed on the heels of a broad two-day rally that had been fueled by some signs that the economy and life in the region may be getting on the road to relative normalcy, along with the massive global monetary and fiscal policy responses, notably out of the U.S.

Japan’s Nikkei 225 Index fell 4.5%, with the yen showing noticeable strength late in session, and South Korea’s Kospi Index dropped 1.1%. China’s Shanghai Composite Index declined 0.6% and the Hong Kong Hang Seng Index traded 0.7% to the downside. However, India’s S&P BSE Sensex 30 Index gained back some of Monday’s record drop, rallying 4.9%, and Australia’s S&P/ASX 200 Index advanced 2.3%.