It was a good week for stock markets in the United States, but there was trouble in Asia.

 

U.S. stock markets rallied last week. The Dow Jones Industrial Average, Standard & Poor's 500 Index, and Nasdaq Composite all gained more than 3 percent, reported Ben Levisohn of Barron's.

 

Investors had plenty of fuel for optimism early in the week. On Sunday, Federal Reserve Chair Jerome Powell struck a positive tone during his 60 Minutes interview stating, "The big thing we have to avoid...is a second wave of the virus. But if we do, then the economy can continue to recover. We'll see GDP move back up after the very low numbers of this quarter. We'll see unemployment come down. But I think though it'll be a while before we really feel well recovered."

 

On Monday, there was news early testing of a potential vaccine had delivered promising results, and the vaccine company's stock shot higher. The report was tarnished when top executives sold shares the next day, and a respected medical website indicated the published results meant little, reported John Authers in Bloomberg Opinion.

 

Positive momentum slowed later in the week when China indicated it will impose national security laws on Hong Kong. Reshma Kapadia of Barron's reported, "While the risks have ratcheted higher, it isn't clear yet whether the new security laws will destroy Hong Kong's ability to act as a financial center. What that could mean for investors will probably play out over the next couple of months."

 

Hong Kong's Hang Seng index closed down 5.6 percent, reported Financial Times (FT). That was the index's worst one-day performance in almost five years.

 

China's leadership also declined to set a gross domestic product (GDP) target for the first time ever. GDP is the value of all goods and services produced in a nation. The decision led to a decline in mainland China's CSI 300 index of Shanghai and Shenzhen-listed stocks, reported FT.

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

HOW IMPORTANT ARE SMALL BUSINESSES? In April, the Federal Reserve Bank of New York (FRBNY) surveyed U.S. small businesses. It reported, late in 2019, before the coronavirus crisis, 35 percent were healthy, 35 percent were stable, 23 percent were at risk, and 6 percent were in distress.

 

Having a preponderance of healthy and stable small companies is a positive economic sign because, as Lisa Beilfuss of Barron's explained, small companies: 

 Simply put, small businesses are an essential part of the American economy.

 

The FRBNY survey also noted few small businesses had deep cash reserves. In fact, it estimated just one in five healthy small companies could survive a two-month revenue loss. In such circumstances, "A majority of small businesses would be likely to reduce their workforce and operations, or delay payments. Many firms would rely on personal funds or debt to bridge the gap."

 

As you might imagine (and may have experienced), the coronavirus crisis has exacted a heavy toll on small businesses. Forty-three percent were temporarily closed by April 2020, according to a survey conducted by the National Bureau of Economic Research (NBER). Others had modified operations to meet social distancing and other COVID-19 safety guidelines.

 

In an effort to help small businesses, Congress, the President, and the Small Business Administration have passed fiscal stimulus measures. The Federal Reserve is providing monetary stimulus. Despite these efforts, the future of small companies remains uncertain.

 

Byrne Hobart of The Diff, a newsletter that tracks inflection points in finance and technology, believes diverse outcomes are possible:

 

"The pessimistic one is front-end corporatization: small businesses just evaporate, their real estate is taken over by big companies, and (some of) their employees find new jobs at these companies...Here's the good one. Those same local businesses are running down their cash reserves, but lenders are banging down the door with a crazy offer: borrow enough to meet payroll now, pay nothing - until business starts coming back...[Lenders get] more involved in the borrower's business - get them good bookkeeping software and a modern point-of-sale system. Band together a bunch of borrowers and start negotiating with suppliers and landlords. In short, use software economics to give small businesses the same economies of scale that large ones already benefit from."

 

It's possible we could see both situations occur.

 

 

"Now the commencement speakers will typically also wish you good luck and extend good wishes to you. I will not do that, and I'll tell you why. From time to time in the years to come, I hope you will be treated unfairly, so that you will come to know the value of justice...I wish you bad luck, again, from time to time so that you will be conscious of the role of chance in life and understand that your success is not completely deserved and that the failure of others is not completely deserved either...Whether I wish these things or not, they're going to happen. And whether you benefit from them or not will depend upon your ability to see the message in your misfortunes."

--John Roberts, U.S. Supreme Court Chief Justice

 

There are signs COVID-19 may be in retreat.

 

Last week, the Centers for Disease Control reported, overall in the United States, for the week ending April 25 (officially week 17 of the coronavirus), the number of:

 

 

This is good news since some states are beginning to reopen.

 

Last week, the Bureau of Economic Analysis reported on the early economic impact of COVID-19 and shelter-in-place orders, which were implemented to prevent healthcare systems from being overwhelmed by COVID-19 patients. The U.S. economy contracted 4.8 percent during the first quarter of 2020.

 

The contraction is expected to be more significant for the second quarter. FactSet estimates the U.S. economy will shrink 27.0 percent, quarter-to-quarter, and finish the year down 3.0 percent overall. 

 

Despite the economic contraction, U.S. stocks finished April with the biggest monthly gain since 1987, reported Colby Smith and colleagues at Financial Times (FT). April's gains were partly the result of fiscal and monetary support, according to FT. The publication cited a global markets strategist who, "...attributed [April's] rally in part to the U.S. Congress and the Federal Reserve extending enormous support to the economy and financial markets in the form of relief packages and emergency lending measures."

 

The Fed isn't the only central bank providing unusual support in these uncertain times. The European Central Bank and the Bank of Japan also announced significant lending and bond buying programs last week, reported Dion Rabouin of Axios.

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

WHAT DO YOU GET WHEN YOU COMBINE PARENTS, CHILDREN, HOMESCHOOLING, AND REMOTE WORK? Here are some quotes about pandemic life curated from social media by Fast Company, BoredPanda, Buzzfeed, and Today:

 

•  "Day 3 of quarantine and distance learning from home: 6-year-old writes biography titled, 'Why I Hate My Family'" - Z

[Four kids run by: one on fire, one naked, two in ski masks and capes]

Boss: Never mind" - Rodney

How is your homeschooling and/or remote work experience going?

 

 

"Rule a kingdom as if cooking a small fish," he once told me. "If you interfere with it too much while cooking, it will fall apart and be inedible."

--Solala Towler, Tales from the Tao: The Wisdom of the Taoist Masters

 

Best regards,

We live in interesting times.

 

There is discussion about whether the saying, "May you live in interesting times," is a blessing or a curse. At this point in 2020, we all understand why.

 

Last week, the world watched in consternation as the price of oil, specifically West Texas Intermediate crude oil, dropped into negative territory. The price moved below zero because a purchase date coincided with a lack of storage space. As a result, the owners of the oil had to pay to have it taken off their hands, reported Ben Levisohn of Barron's.

 

Oil prices recovered on Wednesday. Global oil producers have promised to reduce output, which would realign supply and demand, but it has yet to happen, reported Evie Liu of Barron's. The delay may reflect a hope that coronavirus restrictions will ease, economies will begin to reopen, and demand for oil will increase.

 

Investors were understandably unsettled by oil prices, and U.S. stocks lost value early in the week. As oil stabilized, U.S. stocks pushed higher. The rebound in stocks stalled on news that trials for a potential COVID-19 treatment had produced disappointing results.

 

Thursday's unemployment data showed 4.4 million people filed for unemployment benefits the previous week. That brought the number of unemployed Americans to more than 26 million, according to Jeffry Bartash of MarketWatch.

 

Earnings, which reflect companies' profits, remained less than robust, as expected. "The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the first quarter is -15.8 percent..." reported John Butters of FactSet.

 

The energy sector finished the week in positive territory.

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Stimulus Checks Are Arriving. The Internal Revenue Service (IRS) has distributed $157.9 billion through 88 million stimulus payments, according to Andrew Keshner of MarketWatch.

 

If you have recently lost a job, or you're having difficulty paying bills, your check may already be spent. However, if you're still working, or remain financially comfortable, think carefully about how you want to spend your checks. The money could be used to improve your long-term financial outlook or provide support to people in need. For instance, you could:

 

 

In 2019, the Board of Governors of the Federal Reserve reported just 61 percent of adults had enough savings set aside to cover a $400 unexpected expense. The report stated, "During 2018, one-fifth of adults had major, unexpected medical bills to pay, with the median expense between $1,000 and $4,999. Among those with medical expenses, 4 in 10 have unpaid debt from those bills."

 

 

In early April, the average interest rate assessed on credit cards accounts with unpaid balances was 16.61 percent. Reducing your balance, could significantly reduce the amount of interest you pay. In addition, if something unexpected happens, having a higher level of available credit could be beneficial.

 

 

"...many charities and nonprofits are still struggling. Donations to some churches have plummeted, and many charities have had to cancel crucial fundraising events such as galas, bike races, and walkathons," reported the Associated Press.

 

What are you planning to do with your stimulus check?

 

 

"Do you think you remember a movie in which a knight gallops toward a castle just as its drawbridge is going up, and his white horse jumps the moat in one glorious airborne leap?

 

...we're that rider. Chasing us is the dreaded coronavirus. We're in midair, hoping we make it to the other side, where life will have returned to what we think of as normal. So, what should we do while we're up there, between now and then? Think of all the things you hope will still be there in that castle of the future when we get across. Then do what you can, now, to ensure the future existence of those things."

                                                                                                                                              --Margaret Atwood, Time Magazine, April 16, 2020