Markets got off to a strong start for the week, with growing hopes that coronavirus deaths were beginning to decline in parts of Europe. Markets carried that momentum into Tuesday morning, after China reported no coronavirus-related deaths for the first time, while Germany was seeing more recoveries than new cases and Italy stated it will end portions of its lockdown on May 4. In the U.S., daily virus increases appear to have peaked around 33,000 while the hospitalization rate in New York — the state with the most confirmed cases — has been reducing.
U.S. stocks ended the week on a strong note, continuing Wednesday's gains, as the Federal Reserve announced an additional $2.3 trillion in aid to businesses and governments. The S&P 500 capped off a +12.1% weekly gain, its best such return in 45 years, while the Dow Jones industrial average rose +12.7% over the short four-day week. U.S. Treasury yields increased over the week, driven by the risk-on sentiment in equity markets and an increased supply of Treasuries.
The new Fed measures include an array of programs to help boost the economy hit by the coronavirus pandemic. The central bank said it would also buy investment-grade and junk bonds.
Equities in Europe also rose steadily over the week, the EURO STOXX 50 Index ended +8.6% higher. Germany’s Xetra DAX Index climbed more than +11%, France’s CAC 40 Index gained +7.62%, Italy’s FTSE MIB was up around 5% and the UK’s FTSE 100 Index increasing by +7.89%.
Stocks in Asia and Japan recovered nearly the entire prior week’s losses through the close on Thursday with the Nikkei 225 Stock Average advancing +9.4% over the week.
On Wednesday China ended its lockdown of Wuhan, the original epicenter of the coronavirus outbreak. Travel hubs were reportedly extremely busy after an 11-week lockdown.
On Thursday all members of OPEC and its allies, known as OPEC+, agreed to a 10 million barrels per day production cut, except for Mexico. That fell far short of the expected demand decline of 35 million barrels per day in the wake of the coronavirus pandemic.
The month of April will likely see challenging global economic and earnings data with market volatility likely to remain elevated.
Market Moves of the Week
President Cyril Ramaphosa extended the nationwide lockdown to curb the spread Covi-19 outbreak by two weeks on Thursday, acknowledging the need for a larger scale testing of the virus to get a full picture of the prevalence rate. The initial 21-day stay-at-home order was due to end on April 16, but the President stressed in a televised address to the nation that even as the measures show a level success, the country was at the beginning of a monumental struggle.
“Since the start of the lockdown, the average daily increase has been around 4%. While we recognise the need to expand testing to gain a better picture of the infection rate, this represents real progress,” Ramaphosa said.
“SA lockdown extension implies further downward revision to SA GDP in 2020,” said Kevin Lings, chief economist at Stanlib, adding that the extension also implied further tax revenue shortfall, larger government debt and more unemployment.
The JSE closed firmer on Thursday, ahead of the long weekend, with the JSE all share ending the week +7.65%. The rand regained almost all its losses in April closing just below R18/$ after it reached a record low of R19.34/$ on Monday. The rand is now down 21.77% to the dollar so far in 2020, according to Infront data.
Chart of the Week
The chart shows the PE10 (PE10 = Price / Average (trailing 10-year average of earnings)) valuation indicator for the major global equity regions: U.S., Emerging Markets (“EM”), and Developed Markets excluding U.S. (DM Ex-US). As per the chart U.S. equity valuations have returned to more attractive levels, with DM Ex-US and EM especially looking attractive in terms of the PE10 indicator. It’s important to note that this valuation metric is only one piece of an investment decision.
The information contained herein as well as the individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of Carrick or any financial product. This communication is intended to be used for information purposes only by its designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information freely available to the public and from sources believed to be credible and reliable, Carrick Wealth makes no representation that it is accurate or complete or that any returns indicated will be achieved. Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. The Carrick corporate group is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.