Hey folks, I hope everyone is practicing “safe” distancing…we are coming upon a key time in the markets where we will begin to kick-off Q1 Corp Earnings. Get my take in this week’s round-up.
Weekly Sound Bites:
• The markets saw reasons to cheer as we had the running of the bulls worldwide as all major indexes saw some of the largest gains since 1974…even with this large bounce higher, all important is the question of when the virus will retreat and an economic recovery will begin. Essentially, even though the shutdown was man-made, we don’t make the timeline, the virus does…and this is where analysts are varying in their estimates and the resulting impact on US GDP numbers…already we are seeing the potential recovery in terms of “letters” from a V shape, U, W and L shaped have all been discussed; –but at this time nobody really knows for sure.
• The US Federal Reserve has shown a policy response that has been unprecedented with more than $ 2 Trillion in fiscal measures and even Trillions more in liquidity provisions in attempts to fill the gaps left by the enforced shutdown in large swaths of the US Economy…especially hard hit will be emerging market economies which have gotten by so far on foreign borrowing…from the market peak in early February, we’ve seen over $6.9 Trillion in the value of US Stock holdings…
• The US Feds have rescued High Yield Bonds by announcing plans to move into the junk debt markets to help those BBB companies falling into junk status with rating agency downgrades…from these actions we’ve seen the yield spread of Junk bonds over Treasuries narrow by 85 basis points setting records…the other times being in October 2008 and in April 2009…we’ve seen a large rally in 2 of the largest ETFs tracking these type of debt instruments in HYG and JNK, both gaining more than 6.5% last Thursday alone…
• This past week we are also seeing US Inflation continue to stay weak with the CPI showing prices declined 0.4% month over month in March which dragged down the annual inflation rate to 1.5% with of course energy markets dragging down overall price levels…eventually, we will see all of this monetary stimulus put into the markets by the FEDs begin to feed the inflation engine but not in the near term…
• One interesting statistic that is surfacing during the past few weeks it the ratio of market volatility as measured by the VIX and the bond market volatility…in looking at equity to debt volatility we see equities located at the 99th percentile since 1990 and the bond market volatility located at the collapsing to 16% percentile…this wide of a divergence has traditionally been mostly bullish for equity markets on a go forward basis…time will tell here…more specifically, the moves in equities have tended to be over a 21% gain compared with an average gain of 7% the rest of the time…
Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Stripe Zebra !!
Trade Smart !
hpb
