Week in Review
Week ending April 24th 2020
Market Summary
Another week of mixed news in markets started with a historic move in oil prices as May Futures contracts closed in negative territory for the first time in history. The number of US jobless claims rose to 26 million as the pandemic continues to force widespread shutdowns. In Europe, the PMI index (a business activity indicator) fell to 13.5, the lowest on record. These negative fundamentals were broadly offset as congress unveiled fresh fiscal stimulus for small businesses, and governments from around the globe took positives steps towards easing lockdown measures.
EQUITIES
Stocks were unable to build on the momentum of recent weeks. A late recovery wasn’t enough to offset the early sell-off following unprecedented oil movements.
BOND YIELDS
Treasury yields fell as the oil price contraction created fresh deflationary fears.
CURRENCIES
Currency movements were muted again this week. The US dollar gaining slightly as demand for the world reserve currency of choice continued.
COMMODITIES
Technical factors were at the heart of the oil price collapse this week. May Futures contracts were met with storage capacity issues. Futures traders feared they would have to take delivery of oil on expiration of their contracts. This forced negative prices as they paid for contracts to be taken off their hands creating a negative ripple effect for the oil industry as a whole.
SECTOR BREAKDOWN
MARKET OUTLOOK
While oil prices quickly bounced back from negative territory this week, the oil shock highlights the potential for storage capacity issues to adversely effect the supply/demand function within the oil industry for weeks to come. Earning season is now in full flow, with an overall earnings decline of 15.8% now predicted. Despite the earnings decline and the unprecedented economic upheaval, the S&P valuation is now in similar territory to this time last year, speaking to the ever increasing disconnect between economic data and the Stock Market. While closely following economic data has been fruitless for those equity investors looking to time the market, similar year-on-year S&P valuations despite the erosion of the economic data that underpins these valuations should at the very least raise some red flags when forecasting longer-term valuation predictions.
