July 2020 - Monthly Market Commentary

Most risk assets rallied in July despite the continued upward march of global coronavirus case and death counts, as the fitful reopening of the global economy moved cautiously forward.  Global equities moved mostly higher, with large cap growth stocks again leading the rally, the oil complex continued its rebound, the US dollar index significantly weakened, and the US yield curve flattened; notably, both the Nasdaq index and the price of gold reached all-time highs during the month.  Q2 GDP reports highlighted the disparate economic impact wrought by the coronavirus – US GDP down 9.5% for the quarter, Europe GDP down 12.1%, and China GDP up 3.2%.  The European Commission reached a deal on a 750 billion euro stimulus package of grants and loans focused on those regions and sectors most impacted by the virus.  In the US, partisan disagreement on an additional stimulus package led to the expiration of emergency unemployment benefits.  At its July policy meeting, the Federal Reserve made no change to interest rates, pledged to continue its extraordinary monetary support, and stated that “the path of the economy will depend significantly on the course of the virus”.  China’s industrial production increased 4.8% in June, and its July PMI reading rose to 51.1, though retail sales fell for the fifth straight month.  The most recent initial US jobless claims report (for the week ended July 25) showed that weekly jobless claims totaled 1.4 million, the 19^th consecutive week above 1 million (a level never reached in the pre pandemic era), and the second consecutive week in which claims rose, and continuing claims rose to over 17 million.  The June US jobs report showed that 4.8 million jobs were added during the month, the unemployment rate fell to 11.1% (from 13.3%), the labor force participation rate rose to 61.5%, average hourly earnings decreased 1.2%, and the total labor force rose to 159.9 million, of which 142.2 million were employed. 

Developed market equities were mixed in July (see page 8), with the largest gains in the S&P 500 (+5.6%), Canada (+4.2%), and Australia (+0.3%), and the largest losses in Spain (-4.8%), the UK (-5.4%), and Japan (-3.6%).  US large caps outperformed small caps, with the Russell 2000 up 2.8%, and the Russell 1000 up 5.9% (see page 3).  The best performing S&P 500 sectors in July were Consumer Discretionary (+9%), Utilities (+7.8%), and Materials (+7.1%), and the worst performing were Energy (-5.1%), Financials (+3.8%), and Real Estate (+4%).  Large cap growth (+7.7%) outperformed large cap value (+4%) in July (see page 3).  Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Taiwan (+15.4%), Argentina (+12.5%), and India (+9.4%), and losses in the Philippines (-4.2%), Thailand (-2%), and Mexico (-1.2%).

In currencies, the USD Index weakened sharply in July (see page 10), and the Swedish Krona (+6.2%), Norwegian Krone (+5.8%), and British Pound (+5.5%) saw the biggest gains against the USD.  Emerging market currencies were mixed against the USD, with the biggest gains in the Brazilian Real (+4.6%), Mexican Peso (+3.3%), and South African Rand (+1.6%), and the biggest losses in the Russian Ruble (-3.9%), Turkish Lira (-1.7%), and Indonesian Rupiah (-1.6%).

The US interest rate curve flattened in July (see page 12).  10 year rates closed the month at 0.53%, from 0.66% at June month end.  US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+3.8%) in July (see page 11), with gains in Precious Metals (+10.3%), Industrial Metals (+6.7%), Livestock (+6.1%), Energy (+2.6%), and Agriculture (+1.4%).  Within individual commodities, Silver (+30%), Coffee (+17.8%), and Cocoa (+9.8%) saw the biggest gains, while Corn (-7.5%) and Gasoline (-0.8%) saw the biggest losses.  Gold was up 8.5% in July.

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June 2020 - Monthly Market Commentary

Most risk assets rallied in June, as coronavirus case and death counts continued to mount around the world, particularly in North and South America, global economies moved cautiously to reopen, and global central banks provided continued verbal and monetary support. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex continued to rebound, the US dollar index weakened, and credit spreads widened. At its June policy meeting, the Federal Reserve maintained rates near zero, indicated that it would be targeting monthly purchases of $80 billion of Treasuries and $40 billion of mortgage backed securities going forward, and announced that in addition to bond ETF purchases, it would begin buying individual corporate bonds; the Fed also predicted a 6.5% GDP contraction in 2020, followed by a 5% rebound in 2021. Later in the month, Chairman Powell cautioned that the timing and strength of any economic recovery was extremely uncertain. US industrial production rose by 1.4% in May, led by a 3.8% jump in manufacturing output, while the CPI report showed that consumer prices fell 0.1% in May for the third consecutive monthly decline. In Europe, the ECB maintained interest rates at previously low levels, increased the level of its bond purchases by 600 billion euros (bringing the total post pandemic purchases to 1.35 trillion euros), and extended the duration of the new bond purchasing program to June 2021; the ECB predicted an 8.7% GDP contraction in 2020, and a 5.2% rebound in 2021. Many Asian central banks, including in China, Australia, and Japan, expressed the need for ongoing monetary support and the willingness to implement additional easing measures if necessary. China’s industrial production increased 4.4% in May, though retail sales fell for the fourth straight month. The most recent initial jobless claims report (for the week ended June 20) showed that weekly jobless claims totaled 1.5 million, the 14th consecutive week above 1 million (a level never reached in the pre pandemic era), though continuing claims fell below 20 million for the first time in two months. The May US jobs report showed that 2.5 million jobs were added during the month, the unemployment rate fell to 13.3% (from 14.7%), the labor force participation rate rose to 60.8%, average hourly earnings decreased 6.7% from a year earlier (as more lower paying workers were reemployed), and the total labor force rose to 158.2 million, of which 137.2 million were employed.

Developed market equities rose in June (see page 8), led by the Hong Kong (+11%), Italy (+6.4%), and Germany (+5.2%). US small caps outperformed large caps, with the Russell 2000 up 3.5%, and the Russell 1000 up 2.2% (see page 3). The best performing S&P 500 sectors in June were IT (+7.1%), Consumer Discretionary (+5%), and Materials (+2.2%), and the worst performing were Utilities (-4.7%), Health Care (-2.4%), and Energy (-1.3%). Large cap growth (+4.4%) outperformed large cap value (-0.7%) in June (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in China (+8.8%), Brazil (+8.6%), and Argentina (+7.9%), and losses in Russia (-1.2%) and Thailand (-0.8%).

In currencies, the USD Index weakened in June (see page 10). The New Zealand Dollar (+4%), Australian Dollar (+3.5%), and Swiss Franc (+1.5%) saw the biggest gains against the USD, while the Japanese Yen (-0.1%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Thai Baht (+2.9%), Koran Won (+2.7%), and Taiwan Dollar (+1.5%), and the biggest losses in the Mexican Peso (-3.6%), Brazilian Real (-2.3%), and Russian Ruble (-1.5%).

The US interest rate curve was little changed on the month (see page 12). 10 year rates closed the month at 0.66%, from 0.65% at May month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index increased (+5.1%) in June (see page 11), with gains in Energy (+8.9%), Industrial Metals (+7.3%), Precious Metals (+2.5%), and Agriculture (+0.7%), and losses in Livestock (-7.4%). Within individual commodities, Copper (+11.9%), Heating Oil (+11.8%), and Gasoline (+10.1%) saw the biggest gains, while Lean Hogs (-19.1%), Natural Gas (-10.1%), and Cocoa (-8.9%) saw the biggest losses. Gold was up 2.8% in June.

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May 2020 - Monthly Market Commentary

Most risk assets continued to rally in May, as coronavirus new case and death curves declined in many countries, shut down economies continued to gradually reopen, and additional fiscal and monetary stimulus was implemented. Global equities moved mostly higher, with growth stocks again leading the rally, the oil complex rebounded strongly, the US dollar index weakened, and credit spreads tightened. During the month, the Federal Reserve confirmed the start of its corporate bond buying programs, changed bank capital requirements to encourage participation in the Money Market Mutual Fund Liquidity and Paycheck Protection Programs, updated the terms of its Municipal Liquidity Facility, clarified its high yield ETF purchase plans, and announced commencement dates for its Main Street Business Lending Program. In China, fixed asset investment fell 10.3% in the first four months of the year, and infrastructure investment fell 11.8%; China decided not to set an annual GDP growth target amidst coronavirus uncertainties. Cumulative US jobless claims over the 10 weeks ended May 23 exceeded 40 million, and continuing claims through the week ended May 16 exceeded 21 million. The April US jobs report showed that 20.5 million jobs were lost during the month, the unemployment rate rose to 14.7% (from 4.4%), the labor force participation rate fell to 60.2% (the lowest level since 1973), average hourly earnings rose 5% from a year earlier (this sharp increase was inflated by the loss of many lower paying jobs), and the total labor force fell to 156.5 million, of which 133.4 million were employed.

Developed market equities mostly rose in May (see page 8), led by the Germany (+7%), Japan (+6.7%), and the S&P500 (+4.7%), and losses in Hong Kong (-8.4%). US small caps outperformed large caps, with the Russell 2000 up 6.5%, and the Russell 1000 up 5.3% (see page 3). All 11 S&P 500 sectors were up in May with the biggest gains in IT (+7.1%), Materials (+7%), and Communication Services (+6%). Large cap growth (+6.7%) outperformed large cap value (+3.4%) in May (see page 3). Emerging market equities mostly rose during the month (see page 9), with the biggest gains in Argentina (+19.9%), Brazil (+8.9%), and Malaysia (+6%), and the largest losses in India (-2.1%), Taiwan (-1.6%), and Mexico (-1%).

In currencies, the USD Index weakened in May (see page 10). The Norwegian Krone (+5.4%), Swedish Krona (+3.5%), and Australian Dollar (+2.4%) saw the biggest gains against the USD, while the British Pound (-2%) and Japanese Yen (-0.6%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+9%), Russian Ruble (+6%), and South African Rand (+5.6%), and the biggest losses in the Korean Won (-1.4%), Malaysian Ringgit (-1.2%), and Taiwan Dollar (-1%).

The US interest rate curve flattened at the short and intermediate terms, but steepened at the long end (see page 12). 10 year rates closed the month at 0.65%, little changed from April month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index increased (+16.4%) in May (see page 11), with gains in Energy (+35.2%), Livestock (+5.4%), Precious Metals (+4.2%), Industrial Metals (+2.9%), and losses in Agriculture (-0.2%). Within individual commodities, Crude Oil (+55%), Brent Crude (+38.6%), and Gasoline (+35.4%) saw the biggest gains, while Natural Gas (-16.7%), Coffee (-9.4%), and Lean Hogs (-3.7%) saw the biggest losses. Gold was up 2.7% in May.

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April 2020 - Monthly Market Commentary

Risk assets mostly rebounded in April from the sharp March selloff, as many regional coronavirus infection and hospitalization curves flattened and then declined, some economies began a gradual reopening, and dramatic fiscal and monetary stimulus was implemented around the world. Global equities moved mostly higher, with the energy sector and growth stocks leading the rally, the US yield curve flattened slightly, the US dollar index was unchanged, credit spreads tightened, and oil’s historic collapse continued. The Federal Reserve held interest rates near zero at its April meeting, and indicated that the central bank will “use its tools and act as appropriate to support the economy”, and that additional fiscal stimulus would likely be required to support an economic recovery. Similarly, the ECB kept interest rates unchanged at its April meeting, but indicated that it stood prepared to increase its previously enacted stimulus measures as needed. The US Congress passed an additional $480 billion stimulus package, which, among other things, added additional funding to the previously enacted Paycheck Protection Program. First quarter GDP declined 4.8% in the US, the largest quarterly decline since Q4 2008, and 3.8% in the euro zone, the largest quarterly decline since records began in 1995. For the week ended April 25, the number of Americans filing for unemployment hit 3.8 million, bringing the rolling six week total to 30.3 million. The lagging indicator US jobs report showed that 701,000 jobs were lost in March (ending a record streak of 113 consecutive months of job creation), the unemployment rate rose to 4.4% (off of a 50 year low of 3.5%), the labor force participation rate fell to 62.7%, average hourly earnings rose 3.1% from a year earlier, and the total labor force fell to 162.9 million, of which 155.8 million were employed.

Developed market equities rebounded in April (see page 8), led by the S&P500 (+12.8%), Germany (+9.9%), and Canada (+9.6%). US small caps slightly outperformed large caps, with the Russell 2000 up 13.7%, and the Russell 1000 up 13.2% (see page 3). All 11 S&P 500 sectors were up in April with the biggest gains in Energy (+29.8%), Consumer Discretionary (+20.5%), and Materials (+15.3%). Large cap growth (+14.8%) outperformed large cap value (+11.2%) in April (see page 3). Emerging market equities also rebounded (see page 9), with the biggest gains in India (+15.3%), Thailand (+14.4%), and Taiwan (+12.2%).

In currencies, the USD Index was flat in April (see page 10). The Australian Dollar (+6.2%), New Zealand Dollar (+2.9%), and Swedish Krona (+1.5%) saw the biggest gains against the USD, while the Euro (-0.7%) and Swiss Franc (-0.5%) weakened. Emerging market currencies were mixed against the USD, with the biggest gains in the Indonesian Rupiah (+7.5%), Russian Ruble (+5.7%), and Taiwan Dollar (+1.8%), and the biggest losses in the Turkish Lira (-5.3%), Brazilian Real (-5.1%), and South African Rand (-3.7%).

The US interest rate curve flattened slightly in April (see page 12). 10 year rates closed the month at 0.64%, down from 0.67% at March month end. US investment grade and high yield spreads tightened (see page 13).

In commodities, the GSCI index moved lower (-9.7%) in April (see page 11), with losses in Energy (-19.5%), Livestock (-5.2%), and Agriculture (-4.8%), and gains in Precious Metals (+6%) and Industrial Metals (+1%). Within individual commodities, Gasoline (+21%), Cotton (+11.6%), and Platinum (+11.4%) saw the biggest gains, while Crude Oil (-40.7%), Heating Oil (-19.8%), and Palladium (-15.1%) saw the biggest losses. Gold was up 6.1% in April.

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The New Age of Covid

We’re hiding in our basements, we’re staying off the grid,
We’re scared to go outside, in the new age of covid.
To flatten out the curve, in bunkers we have hid,
Waiting for the apex, in the new age of covid.
Social distancing’s the norm, any closeness we forbid,
Six feet of separation, in the new age of covid.

The virus is among us, spreading its tentacles like a squid,
Asymptomatic carriers, in the new age of covid.
Please don’t touch your face, your ear or your eyelid,
Don’t touch your nose or mouth, in the new age of covid.
It started out just slowly, suddenly into a crisis we all slid,
It’s exponential growth, in the new age of covid.

Wuhan, Daegu, New Orleans, Milan, New York, Madrid,
Cross continental pandemic hotspots, in the new age of covid.
The old, middle aged, and young, grandparent and grandkid,
It appears no one is safe, in the new age of covid.
Sanitizer, soap, and wipes, anything to help us to get rid,
Of the deadly pathogen, in the new age of covid.

ICU counts and death rates, it all seems quite morbid,
Flying blind without good testing, in the new age of covid.
The national stockpile has run dry, divvy it all up we did,
Hoards last only a few weeks, in the new age of covid.
For PPE and ventilators, sadly many have been outbid,
Every state is on its own, in the new age of covid.

How to cope with all this horror, this sadness we’re amid?
The lonely suffering of so many, in the new age of covid.
We must stay strong alone together, into despair we musn’t skid,
Humanity will emerge triumphant, from the new age of covid.
Better treatments and immunity, on this scourge will put a lid,
And finally a vaccine, will bring us to a new age post covid.

March 2020 - Monthly Market Commentary

Risk assets sold off sharply across all asset classes in March, as the corona virus spread across the globe and its devastating impact on the global economy came into focus. Global equities moved sharply lower, with the energy sector, small caps, and value stocks being the hardest hit, the US yield curve moved sharply lower and steepened, the US dollar strengthened, credit spreads widened, and the oil complex collapsed due to a combination of demand destruction stemming from the economic slowdown and increased supply resulting from a breakdown in production level agreements between OPEC and Russia. The Federal Reserve took a series of emergency steps during March, including cutting rates to zero, and launching an unlimited and open-ended asset purchase program, including, for the first time, corporate bonds, a program to support the flow of credit to large and small businesses, a commercial paper funding facility, and a lending facility for foreign central banks. For the week ended March 21, the number of Americans filing for unemployment hit a record 3.3 million, rendering the February US jobs report the ultimate lagging indicator; this report showed that 273,000 jobs were added in February (the 113th consecutive month of job creation), the unemployment rate moved lower to 3.5% (a 50 year low), the labor force participation rate held at 63.4%, average hourly earnings rose 3% from a year earlier, and of the total labor force of 164.6 million, 158.8 million were employed.

Developed market equities moved sharply lower in March (see page 8), with the biggest losses in Italy (-22.4%), Spain (-22%), and Australia (-21.1%). US small caps underperformed large caps, with the Russell 2000 down 21.7%, and the Russell 1000 down 13.2% (see page 3). All 11 S&P 500 sectors were down in March with the biggest losses in Energy (-34.8%), Financials (-21.3%), and Industrials (-19.2%). Large cap growth (-9.8%) outperformed large cap value (-17.1%) in March (see page 3). Emerging market equities moved lower in March (see page 9), with the biggest losses in Argentina (-32.1%), Brazil (-28.9%), and the Philippines (-21.8%).

In currencies, the USD Index was higher (+0.9%) in March (see page 10). The Japanese Yen (+0.5%) and Swiss Franc (+0.4%) strengthened against the USD, while the Norwegian Krone (-9.6%), Australian Dollar (-5.9%), and Canadian Dollar (-4.8%) saw the biggest losses. Emerging market currencies were mostly lower against the USD, with gains in the Taiwanese Dollar (+0.1%), and the biggest losses in the Mexican Peso (-17.3%), Russian Ruble (-14.8%), and Brazilian Real (-14.1%).

The US interest rate curve moved lower and steepened in March (see page 12). 10 year rates closed the month at 0.67%, down from 1.15% at February month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index moved lower (-29.4%) in March (see page 11), with losses in Energy (-47.7%), Livestock (-12.8%), Industrial Metals (-10.2%), and Agriculture (-4.1%), and gains in Precious Metals (+0.4%). Within individual commodities, Wheat (+8.4%), Coffee (+7.4%), and Gold (+1.8%) saw the biggest gains, while Gasoline (-60.2%), Crude Oil (-54.7%), and Brent Crude (-48.4%) saw the biggest losses.

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February 2020 - Monthly Market Commentary

Risk assets sold off sharply on coronavirus fears in February, as global equities moved sharply lower, the US yield curve moved lower across the curve and inverted further in the middle of the curve, the US dollar strengthened, credit spreads widened, and the oil complex sold off sharply. In the twelve months through January, the CPI index rose 2.5% and the PPI index rose 2.1%. The Chinese CPI index rose 5.4% in January, the highest level in eight years. Minutes from the January Fed meeting suggested that the “current stance of monetary policy was appropriate”, though by February month end Fed Chairman Powell said that the central bank would “act as appropriate to support the economy”. The US ISM manufacturing activity index rose in January to 50.9, signaling slight expansion in the sector, while the nonmanufacturing index rose to 55.5. The US jobs report showed that 225,000 jobs were added in January (the 112th consecutive month of job creation), the unemployment rate moved up to 3.6%, the labor force participation rate rose to 63.4%, average hourly earnings rose 3.1% from a year earlier, and the total labor force hit a record high of 164.6 million, of which 158.7 million were employed.

Developed market equities moved lower in February (see page 8), with the biggest losses in Japan (-9.6%), the UK (-9.1%), and Germany (-8.4%). US small caps slightly underperformed large caps, with the Russell 2000 down 8.4%, and the Russell 1000 down 8.2% (see page 3). All 11 S&P 500 sectors were down in February with the biggest losses in Energy (-14.6%), Financials (-11.2%), and Utilities (-9.9%). Large cap growth (-6.8%) outperformed large cap value (-9.7%) in February (see page 3). Emerging market equities moved lower in February (see page 9), with the biggest losses in Thailand (-11.2%), Russia (-10.5%), and Argentina (-8.3%).

In currencies, the USD Index was higher (+0.8%) in February (see page 10). The Swedish Krona (+0.2%) and Japanese Yen (+0.2%) strengthened against the USD, while the New Zealand Dollar (-3.4%), British Pound (-2.9%), and Australian Dollar (-2.6%) saw the biggest losses. Emerging market currencies were mostly lower against the USD, with gains in the Chinese Yuan (+0.3%), and the biggest losses in the Russian Ruble (-4.4%), Brazilian Real (-4.2%), and Turkish Lira (-4.2%).

The US interest rate curve moved lower and inverted further in the middle of the curve in February (see page 12). 10 year rates closed the month at 1.15%, down from 1.51% at January month end. US investment grade and high yield spreads widened (see page 13).

In commodities, the GSCI index moved lower (-8.4%) in February (see page 11), with losses in Energy (-12.4%), Livestock (-6.1%), Agriculture (-2.9%), Precious Metals (-1.9%), and Industrial Metals (-1.2%). Within individual commodities, Palladium (+12.3%), Coffee (+6.4%), and Copper (+1.4%) saw the biggest gains, while Crude Oil (-13.5%), Brent Crude (-12.5%), and Natural Gas (-10.1%) saw the biggest losses. Gold was down 1.2% in February.

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