Market Update - Coronavirus (May 11th)

The economic news continues to be terrible. On Friday, it was announced that the US unemployment rate soared to 14.7% in April – the highest level since the Great Depression. The US Labor Department said that 20.5 million jobs were lost last month, wiping out most of the job gains of the past decade. The New York Times Saturday front page says it all. The newspaper actually had to use up the entire right side of the page in order to properly present the job loss chart. Unfortunately, the situation is not much better in other countries.

At the same time, the S&P 500 equity index ended the day up +1.7%. How is this possible? Well -- these are truly terrible news, but they are not surprising. Anyone tracking the weekly initial jobless claims numbers knew that this was coming. In a way, it is ‘old’ news, and as financial markets are forward-looking, they are already looking ahead to the recovery in economic activity that is expected following the improvement in the Coronavirus situation (see chart below: the number of new daily Coronavirus cases has been stabilizing, while new recoveries are increasing) and the gradual relaxation of the lockdowns/restrictions.

Finally, easy monetary conditions are helping a lot. In fact, according to many measures, we are currently enjoying the most accommodative monetary conditions on record (see BCA Research chart below). This is supporting both the financial/banking system and the prices of financial assets globally.

We will now see how the recovery will unfold and at what pace. It is also crucial to see whether we get a second wave of the pandemic – something that financial markets are currently not well prepared for. We continue to monitor, manage risks and examine opportunities that may be arising.

Have a good week, Eran Peleg