Bryn Mawr Trust Monday Market Insights – April 6, 2020

Top Weekly Themes

  1. Oil prices getting a boost from potential supply cut. The energy sector, the worst performing sector in the S&P 500 last quarter, continued to confront declining oil prices driven by both a lack of demand as well increased supply concerns – an unusual combination. However, the price of oil increased over 20% during last Thursday’s trading on hopes that the oil price war between Saudi Arabia and Russia will ease in the days ahead.  It is expected that a virtual meeting will take place this week between members of OPEC+ (Organization of the Petroleum Exporting Countries) to discuss the amount of oil supply circulating around the global economy.  At a time when economic growth is expected to sharply contract curtailing the demand for oil, production disagreements that surfaced weeks ago between Saudi Arabia and Russia led to an ongoing price war that ultimately flooded the world with unneeded oil supply.  The oil sector is hopeful that some agreement can be made to bring oil supply and demand closer to an equilibrium to help bring some stability to oil prices.
  2. Weekly jobless claims spike again. For the second consecutive week, weekly initial jobless claims far exceeded investor expectations raising concerns the ongoing pandemic has taken a more severe toll on the U.S. labor market. Over the past two weeks, the number of individuals applying for jobless benefits has increased to nearly 10 million.  As stay-at-home guidelines continue and non-essential businesses remain closed in certain areas, initial jobless claims are expected to continue rising in the weeks ahead.  Given these very unusual economic circumstances, the U.S. government has been stepping in to provide additional support for those seeking unemployment.  On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”) that provides an additional $600 per week to eligible employees in unemployment benefits that is expected to last until the end of July.  Unfortunately, this fiscal support will do little in preventing further declines in unemployment but should provide some support to replace a portion of lost income.
  3. U.S. Treasury bills mostly back to positive yields. In many cases, U.S. Treasury securities with less than a year to maturity had recently been trading with negative yields. Demand has been higher than normal as investors await a better understanding of how economic conditions will evolve over time, even if it comes at a modest cost.  Last week, there was a little more normalcy in the U.S. Treasury bills market, with only the very short maturities still priced at a premium.  It’s important to note that the roughly $2 trillion fiscal stimulus package recently signed by the President will lead to increased U.S. government deficits that will need to be financed.  The U.S. Treasury bill market is highly expected to bear a portion of the new debt.  The additional Treasury supply should put upward pressure on short-term Treasury yields, a positive for investors, although maybe not so much for the U.S. government and its financing costs.

Returns Table

EquitiesWeek (%)YTD (%)1-Year (%)3-Year (%)5-Year (%)Div Yield (%)
S&P 500(3.9)(21.4)(10.1)13.535.42.33
Russell 1000 Value(4.4)(28.5)(19.9)(8.6)7.23.43
Russell 1000 Growth(4.1)(16.3)(3.0)34.559.71.32
Russell 2000(7.9)(34.7)(29.0)(18.3)(7.2)2.05
MSCI EAFE(3.2)(25.4)(17.8)(7.2)(5.2)3.56*
MSCI Emerging(1.4)(24.4)(19.3)(4.8)(2.9)2.8*
Fixed IncomeWeekYTD1-Year3-Year5-YearYield 
Bloomberg/Barc US Aggregate1.13.39.415.418.01.58
Bloomberg/Barc US High Yield1.6(13.9)(8.5)0.913.09.77
Bloomberg/Barc Muni Bond(2.3)(3.1)1.49.614.02.47
Bloomberg/Barc Global Agg. Ex U.S.0.1(2.9)
CommoditiesWeekYTD1-Year3-Year5-YearCurrent Level
Crude Oil (WTI) ($/bbl)12.0(58.5)(59.5)(50.0)(48.5)25.3
Natural Gas ($/mmbtu)(8.1)(29.1)(42.2)(51.3)(42.8)1.6
Gold ($/ozt)(1.5),625.7
Copper ($/mt)1.0(21.7)(25.0)(17.6)(19.7)4,821.5
Currencies1 Week AgoYTD1-Year Ago3-Years Ago5-Years AgoCurrent Level

As of April 2, 2020 (close)
*Dividend Yield For MSCI EAFE and MSCI EM are from 12/31/2019

Chart of the Week

Bloomberg Barclays US Aggregate Corporate OAS Index (12-31-2019 – 3-31-2020)
Source: Bloomberg, Inc.

Key Takeaways

  • Credit spreads across investment-grade and high-yield bonds trended higher throughout March, as coronavirus fears and its negative impact on economic growth weighed on investor sentiment and contributed to large amounts of selling across just about all fixed income bond sectors.
  • Usually, very liquid markets became less so given the amount of eager bond sellers combined with less enthused buyers. The mismatch, to some extent, added to credit market volatility and dislocation within the fixed income market.
  • Last week, the Federal Reserve announced a number of facilities to support lending markets and provided another avenue for sellers/issuers to unload their bonds. Noted guidelines for each program stipulated which bonds are potentially eligible for each program to be purchased or used as collateral.
  • Without getting into the program’s details, the facilities certainly provided another avenue of liquidity for bond market participants and, overall, some degree of stability within the lending market. Credit spreads have bounced off their highs from when the Federal Reserve’s programs were announced last week.
  • Going forward, it continues to be important to determine how issuers and sectors will perform, given an expected economic downturn. Credit risk will undoubtedly become more of a focus.  It is important to note that improved market functioning is certainly a positive; however, the programs were not intended to increase company revenues or profit margins.


Conference Board Consumer Confidence
(12/31/2016 – 3/31/2020)

Conference Board Consumer Confidence (12/31/2016 – 3/31/2020)
Source: Bloomberg, Inc.

The consumer is the backbone of the U.S. economy, contributing roughly 70% to gross domestic product.  Spending on products and services, through good economic times and bad has greatly supported the current U.S. economic expansion, the longest in U.S. history.

Today, the environment is different and changing daily.  Stay-at-home orders and store closures will certainly impact consumer spending behavior and economic growth as the year progresses.  Consumers will most likely think twice when distinguishing between necessities and discretionary items that can be left on the shelves.

As worrisome headlines continued over the past week, with new coronavirus cases occurring throughout the U.S., there was one piece of economic data that, understandably, may have been missed – consumer confidence levels.

In March, as expected, consumer confidence levels decreased to levels last experienced in 2017.  What’s interesting is that the projections were far worse.

It’s important to keep in mind that the consumer has been quite resilient.  The current situation will most certainly deter consumer spending, and even the most optimistic economic growth projections are anticipating significant economic contractions.

However, it is worth noting that the consumer is much better financially positioned this time,relative to the financial crisis.  And, the fiscal stimulus appears better targeted to those in need.  Eventually, the pandemic will subside, and our everyday routines will most likely return gradually.  At that time, economic growth is expected to rebound, and the consumer will be front and center once again.

Consumer confidence levels will be an important indicator to monitor to determine the overall strength of the economic rebound.  Consumer sentiment is expected to decline further, but any additional indications that the consumer is holding up better than expected will be a positive to U.S. economic growth.

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