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Stocks Trim Weekly Surge

U.S. stocks pulled back following a three-day surge that saw the Dow post the largest rally since the Depression era. Stocks seemed to find some resistance as the Street continued to grapple with the ultimate impact of the COVID-19 pandemic and whether or not Monday's sharp drop established a floor for the equity markets. However, stocks still registered sharp weekly gains that came courtesy of the massive fiscal and monetary policy responses from Congress and the Federal Reserve, with the House today following the Senate in passing a more than $2.0 trillion aid package. Treasury yields lost ground, along with gold and crude oil prices, while the U.S. dollar extended a recent retreat from multi-year highs. February personal income and spending both rose, while consumer sentiment fell to a multi-year low in March. Lululemon and KB Home were the latest companies to hold off on providing guidance due to the heightened coronavirus uncertainty. Asia was mixed and Europe fell as EU lawmakers failed to agree on stimulus measures.

The Dow Jones Industrial Average fell 915 points (4.1%) to 21,637, the S&P 500 Index dropped 89 points (3.4%) to 2,542 and the Nasdaq Composite declined 295 points (3.8%) to 7,502. In heavy volume, 1.4 billion shares were traded on the NYSE and 3.9 billion shares changed hands on the NASDAQ. WTI crude oil decreased $1.09 to $21.51 per barrel and wholesale gasoline was up $0.01 at $0.61 per gallon. Elsewhere, the Bloomberg gold spot price was $8.55 lower to $1,622.79 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.9% to 98.41. However, the equity markets jumped on the week, as the DJIA surged 12.8%, the S&P 500 rallied 10.3% and the Nasdaq Composite gained 9.1%.

Volatility remained at extreme levels and despite today's pullback, the major markets posted hefty weekly gains to follow last week's largest tumble since 2008. The week saw the S&P 500 surge into a technical bull market—rising more than 20% from Monday's low—after taking less than a month to register a bear market—at least a 20% drop from a recent high—which was the fastest ever as discussed by Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, in his commentary, Who Fueled The Fastest Bear Market Ever? The markets are grappling with the size and duration of the economic impact of the COVID-19 (coronavirus) pandemic, which has seen the U.S. overtake China in having the most cases in the world.

The recent swift rebound for the equity markets came as the Senate passed a $2.1 trillion "phase three" fiscal stimulus package that also quickly passed in the House today. The massive bill includes loans to businesses of all sizes, hospitals, and airlines and cargo carriers, as well as direct payments to households, tax deferrals and extended deadlines, along with aid to municipalities and increased unemployment support. The Federal Reserve is also deploying drastic monetary policy measures aimed at restoring financial market functioning to proper levels, which has boosted the Central Bank's balance sheet above $5.0 trillion for the first time ever. The Fed's measures include open-ended purchases of Treasury and mortgage-backed securities, purchases of corporate bond securities, the expansion of commercial paper funding to facilitate the flow of credit to municipalities, and plans to create a lending program for eligible small-and-medium sized businesses. Yesterday, Fed Chairman Jerome Powell stressed that the Central Bank is not running out of ammunition and has policy room for more action. In the wake of the tidal wave of fiscal and monetary policy stimulus measures, the markets shrugged off yesterday's surge of more than three million in unemployment claims, which trounced the previous record high in 1982.

Schwab Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Triage: Throwing Everything at the Virus, how questions continue to outnumber the answers, while the virus continues to infect people, markets and the economy. She adds that monetary and fiscal stimulus can serve as triage; but they're not the cure. Liz Ann stresses that investors don't attempt to time a bottom but maintain discipline around diversification and periodic rebalancing. She concludes that market bottoms tend to be processes over time, not moments in time; just like investing should be a process over time; never about a moment in time, and remember Panic is Not an Investment Strategy. For timely news and analysis follow Schwab experts from the Schwab Center for Financial Research (SCFR) on Twitter at @SchwabResearch.

Although the normal flow of equity news continued to take a back seat to the coronavirus pandemic and decisive policy responses, Lululemon Athletica Inc. (LULU $190) reported stronger-than-expected Q4 earnings and revenues that matched forecasts, while it held off on providing guidance due to the uncertainty regarding the impact of COVID-19. Also, KB Home (KBH $19) topped the Street's profit and revenue expectations but also withdrew its 2020 outlook, citing the coronavirus uncertainty. Shares of both companies traded lower along with the broader markets.

Personal income and spending rise, consumer sentiment falls, yields seeing pressure

Personal income (chart) rose 0.6% month-over-month (m/m) in February, versus the Bloomberg forecast of a 0.4% rise, and matching January's unrevised gain. Personal spending gained 0.2%, in line with forecasts and the prior month's unadjusted advance. The February savings rate as a percentage of disposable income was 8.2%. The PCE Deflator was up 0.1% m/m, matching expectations and the prior month's unrevised gain. Compared to last year, the deflator was 1.8% higher, above estimates of a 1.7% rise and in line with January's upwardly-adjusted increase. Excluding food and energy, the PCE Core Index rose 0.2% m/m, matching expectations and January's upwardly-revised gain. The index was 1.8% higher y/y, above estimates to match January's upwardly-adjusted 1.7% increase.

The March final University of Michigan Consumer Sentiment Index (chart) was revised lower to 89.1, versus expectations for a downward adjustment to 90.0 from the preliminary 95.9 reading and well below February's 101.0 level. The index posted the largest monthly decline since 2008 and hit the lowest level since October 2016 as both the current conditions and the expectations components of the survey declined solidly. The 1-year inflation forecast declined to 2.2% from February's 2.4% rate, and the 5-10 year inflation forecast remained at the prior month's 2.3% pace.

Treasuries rose as the heightened volatility continues, with the markets grappling with the COVID-19 pandemic uncertainty, the passing of the "phase three" fiscal deal and the Fed's ramped-up stimulus measures. The yield on the 2-year note declined 6 basis points (bps) to 0.23%, the yield on the 10-year note fell 17 bps to 0.68%, and the 30-year bond dropped 18 bps to 1.25%. Amid the unprecedented market action, Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article how to Make Sense of Recent Bond Market Turmoil, noting that for some investors, the best course of action may be to do nothing. She adds that if you have a diversified portfolio that is designed to last through market ups and downs, you may be best off waiting out the storm. However, Kathy provides some advice for those who are upset by the volatility, delivering some steps that would make sense.

Today's March consumer sentiment data offered a timely look at the early impact of the coronavirus pandemic, along with yesterday's initial jobless claims report for last week. Next week, the economic calendar will deliver more reads on economic activity amid the pandemic. More March data lies ahead, with the Institute for Supply Management (ISM) and Markit delivering manufacturing and services sector activity reports, Consumer Confidence hitting the tape, and mortgage applications for this week showing how housing activity is responding to the super low interest rate environment and the COVID-19 outbreak. However, the headlining reports will likely be geared to the labor market, with jobless claims showing how the unemployment situation fared this week after the prior week's historic spike, and the week culminating with the March nonfarm payroll report. Headline payrolls are expected to fall by 81,000 jobs and private-sector payrolls are forecasted to show 100,000 jobs were lost.

Europe falls as coronavirus uneasiness weighs on the region, Asia finishes mixed

European equities traded broadly lower, with concerns regarding the impact of the COVID-19 pandemic remaining exacerbated as death tolls continue to rise in Italy, Spain and France, while U.K. Prime Minister Boris Johnson announced that he has tested positive for the virus. Moreover, uneasiness in the region was amplified by European Union leaders failing to agree on a stimulus package to combat the coronavirus. The euro was little changed versus the U.S. dollar, and the British pound moved to the upside, while bond yields in the region were lower. Schwab's Jeffrey Kleintop offers his commentary, Q&A on COVID-19: The Economy, Markets and What Investors Should Do, noting that rather than trying to call the bottom, a more effective way to think about investing right now is to focus more on the duration rather than the decline.

The U.K. FTSE 100 Index dropped 5.3%, France's CAC-40 Index fell 4.2%, Germany's DAX Index was down 3.7%, Spain's IBEX 35 Index decreased 3.6%, Italy's FTSE MIB Index traded 3.2% lower, and Switzerland's Swiss Market Index moved 2.3% to the downside.

Stocks in Asia finished mixed, with the massive amount of global monetary and fiscal policy stimulus measures, aimed at combating the impact of the coronavirus pandemic being eyed, after leading the three-day surge in the U.S. equity markets yesterday. Moreover, some signs that economic activity and life in the region may be getting on the road to relative normalcy added some support. However, the extreme uncertainty regarding the impact of the pandemic kept the markets on edge, with Australia's S&P/ASX 200 Index falling 5.3% and India's S&P BSE Sensex 30 Index declining 0.4%. Illustrating the negative impact of COVID-19, China posted a sharp drop in February industrial profits and India's central bank cut interest rates and announced further stimulus measures following an emergency meeting. On the positive side, Japan's Nikkei 225 Index rallied 3.9%, despite the yen extending recent strength, while the nation reported that consumer price inflation in Tokyo for March came in a tick higher than expected on a headline y/y basis. Also, China's Shanghai Composite Index nudged 0.3% higher, the Hong Kong Hang Seng Index advanced 0.6%, and South Korea's Kospi Index rose 1.9%. For our analysis of how investors can deal with wild market swings, check out our Q&A With Schwab Experts on Recent Market Volatility.

Along with a host of global manufacturing and services reports for March headlining next week's international economic front, Japan will report its Q1 Tankan Large Manufacturing Outlook Index, Germany will post its March unemployment numbers, and the Eurozone will provide its consumer price inflation estimate for this month.

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