Market Notebook


 Market volatility continued last week as both equities and bonds pushed higher. Positive news regarding the leveling off of cases in New York along with Federal Reserve action and promises of more fiscal stimulus by Congress contributed to market moves. The move by the Federal Reserve to purchase high yield instruments is a significant policy departure signaling that the Fed is likely to continue to backstop financial markets. Over the short term, government support coupled with improving news flow may help to stabilize near term price action.

Over the medium to long term, the effects on real economic activity are unknown. What is known is that significant damage has been done and continues to be done to the real global economy. Governments around the world are using extraordinary measures to mitigate the damage. Even though damage control by governments is ongoing, financial institutions are tightening credit to the people and businesses who need credit the most. This behavior by financial institutions is consistent with recessionary periods as tightening of credit creates a negative feedback loop. Additionally, the effect of COVID-19 on social interaction will likely further limit the pace of recovery once recovery starts. Consumer behavior is likely to be changed for years to come. The implication is that the post-crisis landscape looks much different from the pre-crisis landscape. This process is likely to create winners and losers.

Hopeful but cautious could be used to describe a relatively prudent near term investment attitude. Over the coming week, expect continued volatility as news flow is likely to dominate markets.  Don’t rule out more action by governments. The financial and economic data that typically contributes to market moves is particularly uncertain at this point thus the reason news flow is likely to dominate.

Finally, apologies that only basic charts are included this week. Additionally, several charts are missing. The notebook is undergoing a major overhaul including the addition of more and improved underlying data.

Happy Easter!

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