Gill Capital Partners Market Update
Markets are closed tomorrow, and we wanted to provide an update before heading into the long holiday weekend. First and foremost, we would like to wish everyone a Happy Passover and Easter. Celebrations will be different than in years past, but we hope everyone can find a way to connect with family and friends, albeit in a more distant manner.
Funny/Interesting Quote/Joke of the Day
Kid: “Hey mum, when is this coronavirus thing gonna be over?”
Mom: “Just shut up and eat your toilet paper.”
Market Update
On the economic front, there is more news to digest, including a weekly read on unemployment claims, an announcement by the Federal Reserve, an OPEC meeting, and one fewer candidate in the presidential race.
Unemployment – We received the weekly update on unemployment today and the numbers are staggering. The number of Americans seeking unemployment benefits continues to surge at a record pace. The Labor Department reported that another 6.6 million people applied for unemployment benefits during the week ending April 4. That is on top of the upwardly revised 6.9 million in the prior week and 3.3 million the week before, bringing the total to roughly 17 million since the coronavirus began shutting down large swaths of the U.S. economy. State agencies are reportedly overwhelmed by the volume and still working to process backlogs, which suggests that the totals will continue to rise. These level of unemployment claims equate to an unemployment rate somewhere between 13% and 14%, up from 3.5% just one month ago. The numbers are record breaking, and we are truly saddened for all who are impacted. As we mentioned in a previous commentary, some economists believe that unemployment could reach 20%. Fiscal stimulus measures recently enacted are targeting business support to help keep people out of the unemployment ranks, but the pace of job losses through the end of last week show no signs of slowing.
More Fed Actions & Announcements - As the Labor Department released the unemployment numbers this morning, the Federal Reserve announced additional measures aimed at stabilizing credit markets and providing aid to small and medium businesses. Fed chairman Jerome Powell stated, “the Fed will act forcefully and aggressively to support the U.S. economy,” and announced that they are ramping up their security purchase programs to include corners of the financial markets they have not historically supported. Below is a summary of today’s release:
The Fed will expand securities purchases to include corporate debt recently downgraded from investment grade to junk status, junk bond exchange traded funds, collateralized loan obligations, and commercial mortgage backed securities
A $500 billion municipal liquidity facility has been created
A $600 billion Main Street Lending Program has been created
Markets, particularly credit markets, seemed pleased by the announcements and junk bonds jumped on the news of the Federal Reserve coming in as a buyer. The Federal Reserve continues to show that it will not hinder the economy and is using all of the tools at its disposal to support credit markets. The Fed is determined to keep the credit markets open in an attempt to prevent a health crisis from turning into a credit crisis, even if that means crossing possible moral hazard boundaries by propping up businesses that were overleveraged, poorly run or overly aggressive.
Oil Output Cuts – Saudi Arabia and Russia reached an informal agreement on Thursday to carry out the largest organized oil-production cut in decades. The two nations have been feuding for over a month as oil prices have collapsed amid a sharp drop in demand due to the coronavirus. Delegates from 23 countries have apparently agreed to reduce output by a collective 10 million barrels a day in May and June, which would be followed by curbs of 6 million barrels a day until April of 2022, according to OPEC officials. Oil prices fell 6% following the much anticipated announcement, as the market was hoping for more significant cuts and greater detail. Experts have estimated that global demand could drop by as much as 30 million barrels a day this month. While the coordinated effort is a step in the right direction, more significant moves may be needed.
Market Update – Markets have rallied significantly off the lows seen on March 23rd, as there is a renewed sense of hope that the virus may be peaking in certain areas and that social distancing efforts are working. Additionally, unprecedented fiscal and monetary stimulus measures have supported market liquidity and confidence. While the strong rebound over the past two weeks is reassuring, we urge patience. We believe we have a long way to go before we are through this, and will likely see continued volatility in the coming weeks and months as economic data is released.
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.