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Friday, May 1, 2020

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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