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$2.3 Trillion Bazooka Blast from Fed Boosts Stocks


U.S. equities finished higher, adding to a recent rally off of the March 23rd lows in the final day of a holiday-shortened week, as the Federal Reserve delivered another flood of monetary policy stimulus, this time to the tune of $2.3 trillion. The Fed's actions are aimed at providing further relief and stability to the markets in the wake of another surge in jobless claims that has brought unemployment applications above the 16 million mark in just the past three weeks. Treasury yields fell as bond prices gained ground, while the U.S. dollar was sharply lower and gold was solidly higher. Crude oil prices dropped in late-day trading, as investors awaited details of possible production cuts from the upcoming OPEC+ meeting and whether Russia and Saudi Arabia will end their price war. In equity news, Dow member Walt Disney announced a milestone for its Disney+ streaming service, while Costco Wholesale and Starbucks provided some detail regarding the impact of the COVID-19 outbreak on their results. Europe and Asia were higher with the global markets also continuing to find support from early signs of a flattening of the COVID-19 curve.

The Dow Jones Industrial Average rose 286 points (1.2%) to 23,719, the S&P 500 Index increased 40 points (1.5%) to 2,790 and the Nasdaq Composite advanced 63 points (0.8%) to 8,154. In heavy volume, 1.5 billion shares were traded on the NYSE and 4.1 billion shares changed hands on the NASDAQ. WTI crude oil fell $2.33 to $22.76 per barrel and wholesale gasoline was unchanged at $0.68 per gallon. Elsewhere, the Bloomberg gold spot price was $34.45 higher to $1,680.59 per ounce, while the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.6% to 99.56. Markets were higher for the week, as the DJIA gained 12.3%, the S&P 500 rose 12.1% and the Nasdaq Composite increased 10.6%.

With gains seen in the markets today, U.S. stocks have bounced off of the March 23rd low amid signs that the COVID-19 (coronavirus) pandemic may be leveling off in key hot spots of New York, Italy and Spain, while the original epicenter of China and South Korea continue to recover. The several trillions of dollars in fiscal and monetary support—bolstered by today's surprising $2.3 trillion in further Fed stimulus—being deployed seemed to also help aid sentiment. However, coronavirus death tolls continue to rise, the government's loan program began with some bumps in the road, and the healthcare system continues to be stressed, to keep the markets skittish and volatility elevated. Another key market focal point has been the energy sector as crude oil prices have gained ground recently to extend a recent bounce off of a near two-decade low. However, the commodity fell sharply today, as investors awaited today's meeting between OPEC and its allies, known as OPEC+, which is expected to deliver a 10-15 million barrel per day production cut. The meeting precedes tomorrow's G-20 meeting of oil ministers and comes amid heightened attention on whether Saudi Arabia and Russia can agree to end their price war.

The Schwab Center for Financial Research (SCFR) offers a look at How the U.S. Economic Stimulus Package May Affect Investors, with Schwab's Chief Investment Strategist Liz Ann Sonders noting that fiscal stimulus at this stage is really a rescue or triage mission but it is unlikely to actually stimulate growth, at least until the country is no longer shut down. Liz Ann adds that rather, it is meant to cushion the economic blow from the virus-containment policies, though it was important for the federal government to act quickly and decisively. In her latest article, Box of Letters: What Shape Will the Recession/Recovery Take?, Liz Ann notes that COVID-19-relevant leading indicators are painting a bleak economic picture and the murkiness in the outlook has resulted in an incredibly wide (and dour) outlook for second quarter real GDP. She concludes that most importantly, the hope is we begin to see a "bending of the curve" in the virus itself; so we can not only get back to some semblance of normalcy, but start to put the heartbreak of the past couple of months behind us.

Furthermore, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses in his latest commentary, What Will The Recovery Look Like?, noting that this recession is the result of a shock, not the natural end result of a slow build-up of excesses. Jeff adds that this may mean the recession and bear market could be deeper, but also that the duration may be shorter. For timely news and analysis, follow Schwab experts from the SCFR on Twitter at @SchwabResearch, as well as our Q&A With Schwab Experts on Recent Market Volatility, while you can also acquire helpful insight and information on the current market volatility from Schwab at www.schwab.com/volatility.

Dow member Walt Disney Company (DIS $106) announced that its Disney+ paid subscriber streaming service surpassed the 50 million milestone within five months after its U.S. launch. Shares were higher.

Costco Wholesale Corporation (COST $300) reported that its March same-store sales grew 9.6% year-over-year (y/y), below the FactSet projection of an 18.3% gain, with its U.S. sales rising 10.7% and its ecommerce sales jumping 48.3%. Shares were lower.

Starbucks Corporation (SBUX $74) announced that it expects Q2 earnings-per-share (EPS) of $0.32 ex-items, versus the Street's projection of $0.39, noting the disruption related to the COVID-19 (coronavirus) pandemic, which also materially impacted its U.S. business in the final weeks of the quarter. The company said given the dynamic nature of the COVID-19 crisis, it currently is unable to estimate the full financial impacts beyond Q2 and it is withdrawing its guidance for fiscal year 2020. SBUX traded higher.

Jobless claims spike again, Fed responds with $2.3 trillion in support, Treasury yields lower

Weekly initial jobless claims (chart) spiked again, coming in at 6,606,000 for the week ended April 4th, above the Bloomberg estimate of 5,500,000, and compared to the prior week's upwardly-revised 6,867,000 level. The four-week moving average surged by 1,598,750 to 4,265,500, while continuing claims jumped by 4,396,000 to 7,455,000, south of estimates of 8,236,000. The dramatic rise in unemployment claims over the past two weeks has been anticipated, given the unfolding COVID-19 crisis, but the $2.2 trillion fiscal aid package—and expectations of more—and today's latest blast of monetary policy support are aimed at stemming the flood of unemployment.

The April preliminary University of Michigan Consumer Sentiment Index (chart) fell to 71.0 versus expectations of a drop to 75.0 from March's 89.1 reading. The index registered the largest point drop on record and hit the lowest level since December 2011, as both the current conditions and the expectations components plunged. The 1-year inflation forecast dipped to 2.1% from March's 2.2% rate, but the 5-10 year inflation forecast rose to 2.5% from the prior month's 2.3% level.

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in March declined 0.2% month-over-month (m/m), versus forecasts calling for a 0.4% decrease and February's unrevised 0.6% drop. The core rate, which excludes food and energy, rose 0.2% m/m, versus an expected flat reading and February's unadjusted 0.3% decline. Y/Y, the headline rate was 0.7% higher, above projections of a 0.5% increase and the prior month's unadjusted 1.3% gain. The core PPI rose 1.4% y/y last month, north of estimates of a 1.2% increase and matching February's unrevised gain.

February wholesale inventories (chart) were revised lower to a 0.7% m/m decline, versus expectations to remain at the preliminary estimate of a 0.5% decrease, and compared to January's negatively-revised 0.6% decrease. Sales were down 0.8%, following January's downwardly-revised 1.3% increase.

In response to the severe economic and financial market disruption of the COVID-19 crisis that has seen jobless claims breach the 16 million mark in the past three weeks, the Federal Reserve announced an additional $2.3 trillion in lending and liquidity programs to support the economy. The Fed's statement accompanying the announcement said, "Our country's highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus." The statement added that "The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible."

The program aimed at supporting "employers of all sizes and communities across the country," appears to be broader and larger than the markets had expected. The latest blast of monetary policy support includes actions to bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP). Also, the program will provide purchases of up to $600 billion in loans through the Main Street Lending Program, expand the size and scope of its corporate credit facilities and its Term Asset-Backed Securities Loan Facility (TALF), and establish a Municipal Liquidity Facility offering up to $500 billion in lending to states and municipalities. Federal Reserve Chairman Jerome Powell noted in a speech this morning following the Fed's announcement that, "We are deploying these lending powers to an unprecedented extent, enabled in large part by the financial backing from Congress and the Treasury. We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery."

Treasuries finished higher, as the yield on the 2-year note declined 2 basis points (bps) to 0.23%, the yield on the 10-year note decreased 4 bps to 0.73%, and the 30-year bond rate was 1 bp lower at 1.35%. Amid the unprecedented market action, Schwab's Chief Fixed Income Strategist Kathy Jones offers her Q2 Bond Market Outlook: Looking Beyond the Coronavirus Crisis, in which she notes that while the COVID-19 crisis is far from over, we expect central bank and government policies to be key to performance in the second quarter. Moreover, Schwab's Fixed Income Director, Cooper Howard, CFA, offers analysis outside the Treasury markets in his latest article, Coronavirus and the Municipal Bond Market: Questions and Answers.

Please note: All U.S. markets will be closed tomorrow in observance of Good Friday.

Europe and Asia higher amid continued virus optimism

European equities finished higher, as the global markets continued to find support from early signs of a leveling off of the coronavirus infections in key hot spots of New York, Italy and Spain, which accompanies the continued recovery in the original epicenter of China and in South Korea. The markets also digested another layer of unprecedented monetary policy action from the U.S. Federal Reserve, which came as the world's largest economy announced another spike in unemployment claims. Economic data in the region was mostly favorable, with U.K. manufacturing production for February stronger than expected, and German exports for last month surprisingly rising. The euro and British pound gained ground on the U.S. dollar, and bond yields in the region were mostly lower. Schwab's Jeffrey Kleintop notes in his commentary, Q&A on COVID-19: The Economy, Markets and What Investors Should Do, 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 was up 2.9%, France's CAC-40 Index and Italy's FTSE MIB Index gained 1.4%, Germany's DAX Index rose 2.2%, Spain's IBEX 35 Index advanced 1.7%, and Switzerland's Swiss Market Index ticked 0.2% higher.

Stocks in Asia finished mostly higher on the heels of the late-day surge in the U.S. yesterday that came amid optimism that the COVID-19 curve may be flattening, and as U.S. political uncertainty gained some clarity after Bernie Sanders dropped out of the Presidential race. However, the markets remained cautious as death tolls from the coronavirus continue to rise and as expectations were elevated that unemployment claims in the world's largest economy would show another spike. China's Shanghai Composite Index rose 0.4% and the Hong Kong Hang Seng Index gained 1.4%. South Korea's Kospi Index advanced 1.6% with the Bank of Korea expectedly keeping its monetary policy stance unchanged, while India's S&P BSE Sensex 30 Index rallied 4.2%. Australia's S&P/ASX 200 Index jumped 3.5% with the financial sector leading the way. However, Japan's Nikkei 225 Index finished little changed, with the yen modestly retreating from yesterday's gain. Schwab's Jeffrey Kleintop, notes in the aforementioned commentary, What Will The Recovery Look Like?, how early signs in Asia of a V-shaped rebound are encouraging, but may instead look more like a square root, flattening out as weaker global growth saps Asian economic momentum in the second quarter. Jeff concludes with noting that emerging markets, led by China and South Korea, are leading the recovery in the economy and markets as they did during the global recessions of 2000-02 and 2008-09.

Stocks snapback amid early signs of coronavirus plateau, stimulus continues to pour in

U.S. stocks posted a sharp snapback for the week, further distancing the markets from the March 23rd lows, aided by tentative signs that COVID-19 infections may be leveling off. Cases in key hot spots of New York, Italy and Spain, appeared to slow, while China opened back up the city of Wuhan—the original epicenter—for the first time since January. The unprecedented flood of fiscal and monetary policy stimulus measures also aided the stock market bounce, with the Fed throwing an additional $2.3 trillion at combating the coronavirus impact and the lending component of Congress' $2.2 trillion aid package, dubbed the CARES Act, commencing aimed at trying to keep critical small-and-medium sized business afloat and stemming the recent spike in unemployment. The monumental fiscal and monetary policy support helped the market stomach economic data that showed the severe disruption in business activity, as small business optimism for March and April consumer sentiment both posted the largest point drops on record, while weekly initial jobless claims continued to spike, bringing a three-week total to north of 16 million.

The U.S. Dollar Index slipped in choppy action, the Treasury yield curve steepened noticeably, and gold regained some upward momentum. Crude oil prices slipped in volatile action following last week's surge as the markets eyed this week's OPEC+ meeting that is expected to deliver production cuts between the range of 10-15 million barrels per day, but uncertainty lingered regarding if Saudi Arabia and Russia will follow suit and end their price war. The expected production cuts were also discounted by the uncertainty regarding the impact of the COVID-19 outbreak on the demand side of the equation as global economic activity and travel have ground to a halt due to the pandemic. All the major equity market sectors rallied, with eight of the eleven posting double-digit returns, led by surges of nearly 20.0% for real estate and materials issues.

Looking ahead to next week, the economic calendar will bring some early reads on the impact of the coronavirus, in the form of March reports on retail sales, industrial production, the Leading Index, housing starts and building permits. Also, we will get more timely data points, courtesy of mortgage applications for the week ended April 10th and jobless claims for the week ended April 11th, which will be accompanied by April releases of regional manufacturing activity in New York and Philadelphia, the Fed's Beige Book and the NAHB's homebuilder sentiment indicator. However, the earnings calendar will compete for market attention as Q1 earnings season unofficially begins with a heavy focus on the financial sector, but the results will likely be overshadowed by commentary and guidance regarding how the coronavirus is impacting the key U.S. banking sector.

International reports due out next week that could move the markets include

Australia—April consumer confidence and March employment change. China—lending statistics, trade figures, retail sales and industrial production for March, along with the country's Q1 GDP report. India—trade balance. Japan—February industrial production. Eurozone—February industrial production, along with March data on consumer price inflation and new car registrations.

With volatility likely to remain elevated to exacerbate investor sentiment, check out our article, 7 Things You Can Do During a Turbulent Stock Market, for analysis of what investors should know about dealing with it.

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