A small glimmer of hope is concealed in recent data trends.

Here are a few examples:

  • The number of Covid-19 U.S. cases fell for the fourth week in a row (chart A, below), and deaths decreased for the first time last week (chart B, below).
  • Unemployment insurance claims also fell for the fourth consecutive week (chart C, below).
  • Domestic air traffic posted small gains last week (chart D, below) as did transit hubs (chart E, below).
  • Credit spreads changed little for the third week in a row (chart F, below), and analysts trimmed less than $1 from S&P 500 earnings forecasts (chart G, below).

Viewed from the perspective of weekly change, it seems that we may be starting to see hints of progress.

Chart A

Coronavirus Cases

Chart B

Coronavirus Deaths

Chart C

Unemployment Insurance Claims

Chart D

Daily Flights

Chart E

Transit Station Activity

Chart F

Credit Spreads

Chart G

S&P 500 Earnings Forecast

A Deep Hole

Once the slide ends, we will still find ourselves in a rather deep hole with many unanswered questions about the future. It is important not to lose sight of the size of the human and financial toll. Last week, the Covid-19 death toll rose above 60,000 (chart, above), job losses exceeded 30 million (chart, above), and the economy is expected to contract between 15-30% in the second quarter. The depth of the economy’s slide is making it nearly impossible for many companies and analysts to forecast near-term profits, according to a recent report from FactSet. And the path of the disease, timeline for a cure or treatment, and interim mitigation measures are all unknowns that will dictate that pace at which conditions improve.

Earnings Forecasts Slide, Valuations Jump

As a best efforts guess, analysts now expect S&P 500 earnings to decline 30% in the second quarter and 15% for the full year, according to FactSet. At the same time, rebounding stock prices in April against sliding earnings forecasts leaves the S&P 500 trading at 19x forward earnings. By contrast, the 10-year average multiple is closer to 15x. The rise in multiple implies that investors are looking past the 2020 earnings hole under the assumption a staged reopening of the economy should proceed, recurrences of outbreaks are likely to be small and contained, and severe mitigation measures should not need to be reinstituted. The markets expect more improvement ahead, and will now look for more than hints of progress but strong corroborating evidence things are getting better.

Monthly WCA Barometer Update

We continue to update our readers on our monthly tracking of conditions alongside weekly observations. With April in the books, we now forecast a the WCA Fundamental Conditions Barometer (below) will advance over the next few months.  CONQUEST tactical asset positioning is aligned with this forecast. Equity exposure is below benchmark in the satellite portion of portfolios (short-term focus). In the core of portfolios (long-term focus), we are overweight domestic versus foreign and emerging over developed. We remain overweight value versus growth. Portfolios are underweight high-yield corporate bonds versus the benchmark and overweight gold. As conditions evolve, we will continue to revise our short and long term tactical positioning.

Kevin R. Caron, CFA
Senior Portfolio Manager

Chad Morganlander
Senior Portfolio Manager

Matthew Battipaglia
Portfolio Manager

Steve Lerit, CFA
Senior Risk Manager

Paul Clark, CFA
Senior Portfolio Manager
Municipal Fixed Income

Rick Marrone
Senior Portfolio Manager
Municipal Fixed Income

Suzanne Ashley
Internal Relationship Manager

Eric Needham
Director, External Sales and Marketing

Jeffrey Battipaglia
External Sales and Marketing

S&P 500 — The Standard & Poor’s 500 Index is a capitalization-weighted index that is generally considered representative of the U.S. large capitalization market.

The S&P 500 High Beta Index measures the performance of 100 constituents in the S&P 500 that are most sensitive to changes in the market. Constituents are weighted relative to their level of market sensitivity, with each stock assigned a weight proportional to its beta.

The S&P 500 Low Volatility Index measures performance of the 100 least volatile stocks in the S&P 500. The index benchmarks low volatility or low variance strategies for the U.S. stock market. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.


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