Gill Capital Partners Mid-April Update

As promised, we are sending more frequent communication to our clients, friends, and partners. We hope you find our communications helpful. We are all deluged with a flow of headlines, data, and, in some cases, outright speculation. We do not want to further inundate anyone with additional information, but do want to provide relevant, factual information, along with our perspective. But first, a little humor….

Funny/Interesting Quote/Joke of the Day

Day 1 of quarantine: I’m going to take this as an opportunity to improve my health and learn something new.

Day 20 of quarantine: Due to personal reasons, I am eating lasagna in my shower and drinking margaritas at 9AM.

The Good, The Bad and The Ugly

The Good
The data is showing that daily new cases have stabilized in the U.S. In our previous commentaries we indicated that this was an important box to check and feel this is a huge step toward recovery.

There are currently 78 vaccines in clinical trials. The focus on this from the global scientific community is truly unprecedented. While we know this process is slow and uncertain, the world is hopeful that this extraordinary global commitment will yield positive results. Clinical trial data is starting to be released. There is reason for optimism; however, we know that these trials will take time and a quick fix is likely not in the cards.

Optimism is brewing around “reopening” the country. As the virus appears to be peaking or plateauing in many parts of the country and the world, people are looking ahead to how we safely and effectively reopen. It is still a bit too early to speculate on the details, but there is optimism that stay at home orders may be lifted soon and hope that we will begin to see some level of a return to normalcy.

The Bad
Earnings season has begun, and this week saw banks reporting earnings from the first quarter. Many companies reported earnings that were 70%-100% lower compared to Q1 2019 earnings. Perhaps most alarming is the huge increase (think many billions of dollars) in the amount banks are setting aside to cover losses, such as unpaid credit cards. This feels a bit like a flashback to 2008.

The Ugly
This week we began to see the first economic data points since this crisis escalated, and without sugar coating it, the numbers are awful. Below is a brief sampling from the past week. Maybe best to read with above-mentioned margarita in hand (maybe the lasagna, too)…

Jobs/Unemployment – Weekly unemployment claims for the week ending April 11 were 5.3 million, bringing the total over the last four weeks to 22 million Americans unemployed. To put this into perspective, that is more than during the recessions of the early 1990s and 2001, both of which lasted roughly 36 weeks, and is nearly 60% of all claims filed during the 79 weeks of the recession of 2007-2009. The 22 million jobs lost in the past month effectively wipes out the 22 million jobs added to payrolls since November of 2009.

Retail Sales – Retail sales, which measures purchases at stores (online and physical), gas stations, restaurants and bars, fell 8.7% in March from a month earlier, which is the largest monthly decline since records began in 1992. While spending at grocery stores increased, it was not enough to counter historic drops in areas such as retail, vehicles, and furniture.

Industrial Production – A read on U.S. industrial production from March was also released this week. Industrial production measures factory, utility, mining, oil and gas output. The report showed a drop of 5.4% in the month of March, which is the largest single month drop since 1946.

Homebuilder Confidence – A monthly read on homebuilding confidence plunged to the lowest level in seven years. It was the biggest monthly decline in the 30-year history of the index.

Summary
These economic data points are some of the worst we have seen. The numbers that most were anticipating are coming to fruition. In the face of all this bad fundamental news, then, why has the market rallied? The market has moved materially higher over the past couple of weeks after dramatically falling a little over 30% by the third week of March. In fact, the market has rallied roughly 25% from the recent lows reached on March 23rd. U.S. markets, as measured by the S&P 500, are still down roughly 17% from the highs reached in late February. The recent market rally has found footing on two fronts: massive monetary and fiscal stimulus (another box we wanted to see checked), and hope that the initial peak of this virus may not be too far off. The rapid and unprecedented moves by the U.S. Treasury and the Federal Reserve have provided a calming influence for credit markets that has provided confidence that this crisis will not spiral into a credit market debacle. The second tailwind is hope that we are beginning to see progress with respect to control of the virus and signs that social distancing efforts are working. The conversation is changing, and people are beginning to look forward to how a reopening of our country might look. Have we seen the bottom? We do not know. This is unprecedented territory; however, the answer to that question is inevitably tied to the length of the economic shutdown and what reopening looks like. The market expects terrible news in the short-term and is getting it. What we believe will be the determining factor in the longer-term economic picture is how long it takes to get the economy back up and running. If a restart can happen relatively quickly and businesses can rehire workers, then the worst economic scenarios might be avoided. However, it is yet unclear whether this is an overly optimistic scenario. We continue to learn more each week and will keep you informed of new developments. Until then, stay healthy, safe, and enjoy your margarita, you earned it.   

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.