Mid-Week Market Update

May 6, 2020

Posted on May 6, 2020 in

The month of April was much better for investors than March had been. After what was a horrible month to endure, the market began to cautiously view April as a month of transition amid this crisis. Even though unemployment claims continued to rise, and states remained closed, the markets began to recover. Much of this had to do with COVID-19 developments and a clearer economic picture.

To start the month of April, infection rates and hospitalizations were growing across the country. It took a couple weeks to see the effects of social distancing on the medical statistics, but near the end of the month, key statistics were declining. At the same time, over seventy companies around the world were pushing drug treatments or vaccines through various stages of trials in order to have a toolbox to fight the virus. Nearing the end of April, several promising reports were published about different drugs suggesting treatments and vaccines may be closer.

As the viral statistics began to decline, the economic fallout became clearer through April. The number of unemployed individuals did rise to over 30 million, the highest since World War II. First quarter GDP came in at -4.8% and the second quarter is likely to be negative as well suggesting the country will officially be in recession for the first time since the financial crisis. While this information would normally be reason for concern, the markets rallied through the month.

Investors were rewarded for their patience as the month of April was the best month in the markets since 1987. The S&P 500, the Dow Jones Industrial Average, and the NASDAQ all finished up over 11% for the month. The markets did not ignore the negative economic data, but they focused on what was being done to combat the virus and support the economy. The Federal Reserve kept interest rates low and continued to support the bond markets by buying bonds. Congress and the President replenished the PPP funds and provided more funding for hospitals and virus-related aid. Finally, a few governors began reopening or publishing guidelines on how to restart the economy in their respective states.

While April was a great month, we want to remind everyone that volatility is likely to remain. It is too early to know if the worst is behind us or if more waves will come. It is likely that the second quarter economic data will be much worse than the first quarter, but also likely that the market will continue to look past the current data for the success of the reopening. Add this to a presidential election year and there is bound to be volatility.

Michael Scott | MBA, CFA
Senior Portfolio Analyst