Painting (the market) by numbers
Ten factoids to illustrate how the COVID-19 pandemic is impacting the economic and market landscape.
Our Top Market Takeaways for April 10, 2020.
Painting (the market) by numbers
Before we dive in, we want to express our sympathy for all those who are suffering from this pandemic, and appreciation for the many people on the frontlines who are working to save lives every day. During these uncertain times, we are particularly grateful to share our insights with you.
We’re sending our warmest wishes to you and your families for healthy and safe springtime holidays. In lieu of making matzoh houses or dip-dyeing eggs, we’ve decided to paint a picture of the current market and investment landscape by numbers.
1. 1.6 million: The number of people infected by COVID-19 around the world. As we have maintained, the path of the virus is the most important factor for human health and safety, the economy and markets.
This week, both Italy and Spain have seen fewer daily new cases than they averaged in the week prior. In the United States, daily new cases have been consistently below the high reached on April 4 (34,123). But while we’re seeing glimmers of hope that the virus curve is flattening in the West, the East has been experiencing a resurgence in cases. Both Japan and Singapore, despite experiencing the start of the pandemic ahead of the United States, have reinstituted restrictive social distancing measures this week to work against a surge in new cases.
Description: Line chart shows the confirmed number of COVID-19 cases, against the number of days since crossing 100 cases for the United States, Spain, Italy, Japan and Singapore. It indicates that through April 10, 2020, the United States, Spain and Italy had the largest number of cumulative cases.
2. 16.8 million: The number of Americans who have filed for unemployment benefits over the last three weeks. This severe decline in employment has been historically fast. In the last seven recessions, it took more than 13 times as long to reach 15 million new initial jobless claims. This represents over 10% of the U.S. labor force. And if all 16.8 million people who have filed claims for unemployment benefits ultimately register as “unemployed,” then the unemployment rate reported in the April U.S. jobs report could be as high as 13% (and by the way, we expect more claims to roll in). This would mark the highest unemployment rate since the Great Depression, and would mean that the U.S. economy went from a 50-year low in unemployment (3.5% at its last pre-COVID-19 crisis reading) to an 80-year high…all over the course of a month.
Of course, the CARES Act brings a host of benefits to many of these workers, and a good chunk are likely to be re-employed on the other side of this pandemic. Nonetheless, the steep decline demonstrates the halt we are seeing in economic activity and a foreshadowing of the dismal data we are sure to see in the months ahead.
Description: Graphic shows the number of U.S. initial jobless claims for three weeks ending in March 21, March 28 and April 3—for a total of 16.78 million claims as of April 9, 2020. Whereas, the graphic illustrates across prior U.S. recessions, the number of weeks to reach 15 million claims was an average of 39 weeks.
3. 24.7%: The S&P 500’s eye-popping recovery rally since its March 23 low. The optimist might be convinced we are in the midst of a new bull market, while the pessimist might suggest we’re experiencing a “bear market rally”—a short-term surge in stocks amid a longer spiral to the bottom. The Global Financial Crisis, for example, saw several fits and starts along the way—rallying as much as 24% at one point before ultimately hitting its trough on March 9, 2009.
Saying with certainty which direction we’re headed in can only be done with the gift of hindsight. What we can say is that we are approaching stocks with an abundance of caution. It is possible markets will grind higher in the months ahead, but we think it’s more likely the S&P 500 trades lower from here before it eventually recovers. Why? With the path of the virus still uncertain, the brunt of the economic decline still ahead of us, and the bulk of current policy efforts only likely to support the economy over the next 6–8 weeks, there is plenty of news ahead for markets to digest. We do think it’s unlikely the S&P 500 will make a new low (below 2,237 from March) from here, though.
Description: Line chart shows the distance from the previous low for the S&P 500 Index during the Global Financial Crisis, spanning October 2007 through March 2009. The line chart indicates that the S&P 500 Index rallied as much as 25% at one point before ultimately hitting its trough (low point) on March 9, 2009.
4. 2,370–3,050: The range the S&P 500 is likely to trade within between now and June 30. According to the options market, there is a 25% chance the S&P 500 will be below 2,370 (or -15.0% from current levels) and a 25% chance it will be above 3,050 (+9.4% from here) by that date. This means there is about a 50% probability we land somewhere in the middle of that 680 point range. That’s a lot of variability, and it’s skewed to the downside.
5. $900 billion: The total estimated amount of securities the Fed has purchased over the last three weeks as part of its latest Quantitative Easing (QE) program. This already exceeds the total program for QE2 (around $0.6 trillion), and is gaining quickly on QE1 ($1.5 trillion) and QE3 ($1.2 trillion). Bottom line: The Fed is buying securities at a record pace to support the economy, and more measures continue to be announced. Just yesterday, the Fed provided more details on its liquidity facilities and the Main Street Lending Facility, aimed at putting cash in the hands of medium-sized businesses.
Description: The bar chart shows the number of securities the Fed has purchased as part of Quantitative Easing (QE) programs. It indicates the following, QE1 ($1.5 trillion) in 25 weeks, QE2 (around $0.6 trillion) in 35 weeks, and QE3 ($1.2 trillion) in 42 weeks. For QE4, which is March 2020 through today, the Fed has purchased an estimated $900 billion in securities.
6. $5.7 trillion: The approximate sum of the U.S. government’s planned loan guarantees and fiscal easing in response to the COVID-19 crisis, which amounts to over 25% of GDP. This scale of fiscal support is unprecedented, and is more than double the size of the response to the Global Financial Crisis. We’re often hearing the question of what that means for the U.S. budget deficit and federal debt. The budget deficit is likely to exceed 15% of GDP this year, and federal debt-to-GDP is poised to climb toward an all-time high above 100%. Fortunately, the government is able to borrow money at historically low interest rates. So long as deficits are reduced in the years ahead and nominal growth rebounds above borrowing rates as economic conditions normalize, we don’t think the level of U.S. government debt is a terrible concern for investors at this time.
7. 57: The number of companies in the S&P 500 with a positive price return year-to-date. Taking a look at who has fared best, Regeneron Pharmaceuticals (+36.6%) is on top thanks to optimism around its efforts to develop prevention and treatment drugs for COVID-19. Newmont Corporation (+31.9%) is a gold mining company whose stock has risen along with demand for the shiny yellow safe haven. Citrix (+25.7%), known for its virtual private networking software, is benefiting from all of us having to work from home—the same can be said for SBA Communications (+26.9%) and Digital Realty Trust (+23.8%), which are on the real estate side of wireless communication, internet and data exchange. As for those who have been hardest hit? Look no further than travel-based companies (like cruise lines) and those involved with energy exploration and production.
Description: The graphic ranks the S&P 500 five best performers and five worst performers, ranked by % price return.
8. 142 years: The amount of time that will have passed since crude oil had a year almost as bad as this one, assuming 2020 ends with oil prices at current levels. Brent crude prices are down -52.2% since last year—worse than the current annual record decline of -50.8% set in 1878. Lest you’ve forgotten: The combination of severe demand disruption from COVID-19 lockdowns and jump in supply from the market-share battle between Saudi Arabia and Russia has caused oil prices to plummet this year.
Description: The line chart shows the year-over-year % price change in oil prices. It illustrates that Brent crude prices are down -52.2% since last year—worse than the current annual record decline of -50.8% set in 1878.
9. 9%: The average annual total return an investment in the S&P 500 would generate even if it took three years to get back to its February 2020 high. That exceeds the average annual total return of the S&P 500 over the past 20 years of 8.3%. The index still needs to rally more than 20% from current levels to get back to its peak, and uncertainty surrounding COVID-19 looms large. The silver lining? If history is any indication, those with the discipline to stay invested through volatility and put time on their side will be rewarded.
Description: The bar chart shows the percentage average annual total return needed for the S&P 500 to get back to market highs. The bar chart indicates the average annualized return and cumulative total return required to get back to peak, for one to 10 years.
10. 0.8%: Our Advice Lab’s outlook for the U.S. Treasury discount rate for the month of May, which would be its lowest level in history. The Treasury discount rate not only sets the rate for intra-family loans, but also sets the rate for annuities paid out of gifting strategies like Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs). When the rate is low, gifters may be able to transfer more wealth to beneficiaries in a tax-efficient manner. What’s more, transferring assets when their values are depressed (as in the current environment, after a sizeable selloff) can also make for more efficient wealth transfers. The point here is that now may be a good time to reflect upon your financial goals and plan, and consider taking action if it makes sense to do so. Your J.P. Morgan Advisor is here to help you along the way.
All market and economic data as of April 2020 and sourced from Bloomberg, FactSet and Gavekal unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
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- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.