April saw U.S. stocks post their best month in over thirty years, which unfortunately came against the backdrop of severe losses experienced the month prior.
As of April 23rd, a total of 26 million jobs have been lost in the U.S. over the five weeks since the COVID-19 outbreak began. While the rate of job losses is slowing, effectively all jobs gained since the Great Recession have vanished. As a result, on April 29th the U.S. Federal Reserve reiterated their commitment to maintaining interest rates of nearly 0.0% with no indication that rates would rise in the immediate future. Additionally, the Fed will continue its bond buying program to support the flow of credit to businesses and individuals.
Much of the April rally in risk assets was fueled by a decline in the daily number of new COVID-19 infections, which prompted the government to start laying out plans to reopen the economy. Further, positive results from clinical trials of Gilead’s antiviral drug Remdesivir on COVID-19 patients helped buoy stocks.
Even though we remain cautiously optimistic at this juncture, sectors of the economy will be forever changed by this pandemic and may not fully recover. In particular, we see vulnerability in retail, hospitality/tourism, transportation, and commercial real estate. The overarching lesson from the coronavirus pandemic is that no industry is safe from the potential economic fallout of a black swan event. Our more global view is that many small businesses will fall victim to the financial consequences of COVID-19 and much of the future economic benefit will be reaped by the largest companies in the U.S., particularly those in the technology sector.
As we move through the second quarter, we will expect to get more clarity on the state of the economy as corporate earnings are reported and more economic data points become available.