After an incredibly volatile and severe drawdown in March, most markets rebounded in April and recovered some first quarter losses. It was certainly a welcome reprieve for investors as volatility fell, supporting liquidity and allowing for more normal trading activity.
It’s difficult to pinpoint one catalyst for the broad market rally, however, there were several key developments and themes that likely contributed to the risk-on sentiment. First off, it seems that as more time passes, the amount of uncertainty in terms of the potential health impact of the virus is waning, albeit at a slow pace. As countries and regions across the world begin to reopen and discussions about that process advance, those headlines and positive news flow will likely spur some investor optimism. Another crucial factor at play is the unprecedented stimulus that we’ve seen to date at a global level, on both the monetary and fiscal fronts. From a fiscal standpoint, governments provided tremendous amounts of financial support to individuals, small business and other organizations most severely hit by the shelter-in-place order. On the monetary side, central banks cut interest rates and continue to ramp up asset purchase programs, which are expected to continue for the foreseeable future. In its most recent meeting, the Federal Reserve (Fed) held rates unchanged but reiterated the commitment to support markets until significant progress is made with the economic recovery.
We continue to believe that investors should be patient and adhere to a well-constructed, diversified investment portfolio anchored to your goals and time horizon. Please reach out to your Legacy One Financial Advisor to discuss headlines, any concerns you may have and to review your individual portfolio.
Below is an overview of some of the data points that we have been monitoring:
- Equity markets experienced some relief in April, particularly U.S. companies, with large and small cap indices up around 13 percent.
- In early April, the major oil players reached an agreement to cut production in the face of a severe drop in demand. However supply still overwhelmingly outpaced demand amid the virus outbreak, driving prices into negative territory for the first time in history.
- Over 30 million Americans have filed for unemployment benefits in the last six weeks.
- Credit spreads narrowed amid accommodative monetary policy
- Inflation expectations rose modestly benefitting TIPS
- Fiscal and monetary policy response to the global pandemic supported equities
- Late April rally propelled small caps
- U.S. dollar strength weighed on international stocks
- Attractive valuations stirred interest in real estate and midstream energy
- Disinflationary pressures weighed on commodity prices
Please reach out to your Legacy One Financial Advisor to discuss headlines, any concerns you may have and to review your individual portfolio.