The Markets in April

The Markets in April 2020

T.S. Elliot wrote “April is the cruelest month” in his poem The Waste Land, and he was not far off this year. The month began on a bad note for stocks as each of the major indexes lost value. Economic reports reflected the impact of the COVID-19 pandemic: historic job loss and unemployment claims that rose each week, shuttered businesses, negative crude oil prices amid waning demand, and manufacturing lows not seen in more than 10 years.

The federal government continued to try easing the economic strain on individuals and businesses. The Paycheck Protection Program and Health Care Enhancement Act replenished the initial Paycheck Protection Program, provided additional funding for small business loans, gave financial support to hospitals, and increased availability for virus testing. The Federal Reserve added trillions of dollars in funds to its lending programs for states, cities, and midsize businesses. The economic strain prompted a few states to begin the process of easing lockdown restrictions and reopening a range of businesses, instead of stay-at-home restrictions.

Despite several periods of volatility, a spike during the week before Easter pushed stocks ahead for the month. Of the major benchmark indexes, only the Global Dow did not have gains for the month. While stock values rose in April, bond yields fell as prices climbed. The yield on 10-year Treasuries dropped 7 basis points from March and is 130 basis points below its 2019 value.
By the close of trading on April 30, the price of crude oil sank to $19.04 per barrel, well below the March 31 price of $20.35 per barrel. Reeling oil values sent prices at the pump spiraling downward. The national average retail regular gasoline price was $1.77 per gallon on April 27, down from the March 30 selling price of $2.01 and $1.11 less than a year ago.

Economic Reports

  • Employment: The jobs report for March was a stark reflection of the impact of COVID-19. After gaining over 270,000 new jobs in February, March saw employment fall by 701,000. The unemployment rate surged from 3.5% in February to 4.4% in March (the largest over-the-month increase in the rate since January 1975). The number of unemployed persons rose by 1.4 million to 7.1 million in March. Employment in leisure and hospitality fell by 459,000, mainly in food services and drinking places. Notable declines also occurred in health care and social assistance, professional and business services, retail trade, and construction. The labor force participation rate, at 62.7, decreased by 0.7 percentage point over the month. The employment-population ratio, at 60.0%, dropped by 1.1 percentage points over the month. In February, average hourly earnings for all employees rose by $0.11 to $28.62. Average hourly earnings increased by 3.1% over the last 12 months ended in March. The average workweek fell by 0.2 hour to 34.2 hours in March.
  • FOMC/interest rates: In its last meeting, on April 29, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 0.00%-0.25%. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events. To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities. In any case, the Fed says it is “committed to using its full range of tools to support the U.S. economy in this challenging time.”
  • GDP/budget: COVID-19 dramatically slowed the economy in the first quarter. According to the advance report, GDP decreased at an annual rate of 4.8%. The GDP advanced at an annual rate of 2.1% in the fourth quarter. Personal consumption expenditures (consumer spending) decreased by 7.6% (compared to 1.8% growth in the fourth quarter). Exports fell 8.7% while imports plummeted 15.3%. Consumer prices rose 1.3% (1.4% in the fourth quarter); personal income increased $95.2 billion in the first quarter, compared with an increase of $144.1 billion in the fourth quarter; and after-tax (disposable) personal income increased $76.7 billion, or 1.9%, in the first quarter, compared with an increase of $123.7 billion, or 3.0%, in the fourth quarter.
  • The government deficit in March was $119 billion, down from February’s deficit of $235 billion. In March, the largest expenditures were for Social Security ($91 billion) and national defense ($62 billion). On the income side of the ledger, social insurance and retirement accounted for $108 billion and individual income taxes totaled $98 billion. Through the first six months of the 2020 fiscal year, the deficit sits at $744 billion, 7.7% greater than the deficit over the same period last fiscal year ($691 billion). Compared to the same six-month period last fiscal year, government receipts rose from $1.5 trillion to $1.6 trillion while spending rose from $2.2 trillion to $2.3 trillion.
  • Inflation/consumer spending: According to the Personal Income and Outlays report for March, both personal income and disposable (after-tax) income decreased 2.0%, respectively. Consumer spending fell $1,127.3 billion, or 7.5%. Price inflation remained low, however, as consumer prices dropped 0.3%. Over the last 12 months, consumer prices are up only 1.3%.
  • The Consumer Price Index fell 0.4% in March, the largest monthly decline since January 2015. Over the last 12 months, the all items index increased 1.5%, a notably smaller increase than the 2.3% increase for the period ended in February. A sharp (10.5%) decline in gasoline prices was a major cause of the monthly decrease, with decreases in airline fares, lodging away from home, and apparel also contributing. Prices producers receive for goods and services fell 0.2% in March after advancing 0.6% in February. The index has increased 0.7% since last March. Producer prices less foods, energy, and trade services declined 0.2% in March, the largest decrease since falling 0.2% in October 2015. Since March 2019, prices less foods, energy, and trade services moved up 1.0%. In March, producer prices for goods fell 1.0% in March, the largest decline since moving down 1.1% in September 2015. Over 80% of the February decrease in goods prices is tied to a 16.8% drop in gasoline prices.
  • Housing: After jumping 6.5% in February, existing home sales plunged 8.5% in March. Year over year, existing home sales are up 0.8% (7.2% for the 12 months ended in February). The median sales price for existing homes was $280,600 in March, compared to $270,100 in February. Existing home prices were up 8.0% from March 2019. Total housing inventory at the end of March represented a 3.4-month supply at the current sales price. Sales of new, single-family homes followed a February slide by dropping 15.4% in March. Sales are 9.5% below the March 2019 estimate. The median sales price of new houses sold in March was $321,400 ($345,900 in February). The average sales price was $375,300 in March ($403,800 in February). Available inventory, at a 6.4-month supply, was higher than February’s 5.0-month supply.
  • Manufacturing: After increasing in February, industrial production fell 5.4% in March, as the COVID-19 pandemic led many factories to suspend operations late in the month. Total industrial production was 5.5% lower than a year earlier. Manufacturing output dropped 6.3% last month with most major industries posting decreases, led by motor vehicles and parts, which plummeted 28.0%. Durable goods orders were negatively impacted by COVID-19 in March. New orders for durable goods decreased 14.4% following a 1.1% increase in February. The March decrease followed three consecutive monthly increases. For the year, new orders for durable goods are down 5.2%. While most manufacturers of durable goods saw orders fall, hardest hit were nondefense aircraft and parts (-295.7%) and transportation equipment (-41.0%). New orders for capital goods (manufactured assets used by businesses to produce consumer goods) fell 26.8% in March, driven primarily by a decrease in new orders for nondefense capital goods, which receded 33.4%.
  • Imports and exports:Import prices fell 2.3% in March after inching down 0.5% in February. The March decrease in import prices was the largest decline since import prices fell 3.2% in January 2015. Since March 2019, import prices have fallen 4.1%, the greatest year-over-year fall since import prices dropped 4.7% for the 12 months ended in June 2016. Fuel imports plunged 26.8% in March, the largest monthly decline since prices plummeted 27.8% in November 2008. Prices for exports dropped 1.6% last month, following a 1.1% decline in February. This is the largest monthly decrease in export prices since January 2015. Prices for exports decreased 3.6% on a 12-month basis from March 2019.
  • The international trade in goods deficit was $64.2 billion in March, up $4.3 billion from $59.9 billion in February. Exports of goods for March were $127.6 billion, $9.1 billion less than February exports. Imports of goods for March were $191.9 billion, $4.8 billion less than February imports.
  • The latest information on international trade in goods and services is for February and shows that the goods and services trade deficit was $39.9 billion, down from the $45.3 billion deficit the previous month. February exports were $207.5 billion, $0.8 billion less than January exports. February imports were $247.5 billion, $6.3 billion lower than January imports.
  • International markets: Some countries began easing shutdown restrictions as COVID-19 infection levels started to level off. Germany, Italy, and Australia were a few of the nations that begun to see a slight reduction in the spread of the pandemic. Nevertheless, global economies are facing severe downturns. April’s purchasing managers’ indexes for the vast majority of reporting countries have shown similar results: deepening industrial contraction. Purchasing managers’ indexes for France, Germany and other eurozone nations recorded historic lows last month and are not expected to reverse course in May. In Asia, China’s economy contracted 6.8% on the year and -9.8% for the first quarter. The European Commission’s economic sentiment index (ESI) was down a record 26.8 points in April, reflecting a broad-based worsening of short- and long-term economic projections.
  • Consumer confidence: The Conference Board Consumer Confidence Index® deteriorated further in April following a sharp decline in March. The index fell from 120.0 in March to 86.9 in April. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — plunged 90.4 points, falling to 76.4. However, the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions, improved from 86.8 in March to 93.8 in April.

The Month Ahead

The economy continues to slow historically and dramatically. As more data is revealed, the news on the economic front is expected to continue to show the negative impact of COVID-19. Jobs, manufacturing, and government spending are sectors expected to be hit hardest.




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