Before we can hope to see a turn for the better, we must first see signs of stabilizing. For the most part, this is what we see in the most recent data. We try to discern the path to recovery in the week-to-week data: virus trends, by looking at cases and deaths across the United States; economic trends, by looking at mobility and reports of real economic activity; and market trends, by looking at the response of key financial indicators. This week’s analysis showed us that the economic hole is deep, but the rate of falloff is slowing.

Slowing Spread

New York reported fewer hospital admissions last week and nationwide cases rose 3.5% versus 3.8% the week before. The Covid-19 nationwide death toll is over 50,000 and the United States is now the epicenter of the pandemic. The number of deaths climbed by 37% in the week ended Friday, compared to a 97% increase the prior week. The weekly rate continues to abate (chart, below). Slowing the spread of the virus is an essential first step in recovery.

U.S. Coronavirus Deaths — Weekly Growth Rate (%)

Real Economy

The real economy is suffering its sharpest slowdown in a generation. The United States so far has lost 26 million jobs during this lock-down. Last week, unemployment claims declined to 4.4 million from 5.2 million the week prior. But the mounting job losses are exacting a harsh toll. Consider that if weekly claims average just 1-3 million per week over the next five weeks, total additional job losses would be between 5-15 million more, bringing total losses to 30-40 million. This translates to an unemployment rate of 20-25%, a level not seen since the early 1930s. But unlike that period, many of the job losses are expected to be temporary (furloughs), unemployment insurance and additional payments are available through newly enacted programs, and the Federal Reserve is very accommodating.

Measures of activity and movement are down, but flattening. The number of total U.S. flights increased by 4% last week (down 60% overall), and transit hub mobility was flat (down 77% overall). Weekly retail sales fell 6.9% and flat rolled steel output was level at 1.28 million tons, down a third since February. The New York Federal Reserve Weekly Economic index hit a record low of -11.7, down 1.3 points for the week. We estimate the U.S. economy is presently contracting at an annualized rate of -16 to -24% based on this data.

Oil Shocker

U.S. oil demand is down 22% and supply, measured as days supply available, is up 45% since February. Falling demand and surging supply is behind a 70% drop in crude prices. West Texas Intermediate crude futures prices actually fell to -$38 for one month delivery on April 20 because of a shortage of storage! This shocking development is battering the U.S. energy industry, further compounding pain in energy dependent states like Texas, Oklahoma, and North Dakota.

Signs of stability are starting to emerge in the depth of a very harsh virus and shutdown induced recession. The path to overcoming the threat of the coronavirus must pass through a phase of repressed social and economic activity. The toll for which is a very pronounced and unexpected hit to the global economy. We continue to recommend a balanced approach and emphasis on quality as the best way to navigate this most challenging environment. 

Portfolio Positioning

CONQUEST portfolios remain tactically underweight equities in keeping with our updated WCA “Recovery Tracker” (chart, below). Portfolios are also overweight U.S. vs. Emerging Markets, overweight gold vs. high yield, and we are overweight value versus growth based on valuation. Equity portfolios continue to emphasize quality, dividend growth, and value.

WCA “Recovery Tracker”

The new weekly “WCA Recovery Tracker” (chart, below) places roughly 30% weight on coronavirus trends, 30% on financial market trends, and 40% weight on real economic trends. Readings above 50 will be considered positive, and below 50 negative. We will be updating this every week or two and use the barometer as a tool to discern trends, plot the shape of recovery, and help guide the short-term tactical positioning of CONQUEST portfolios.

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

Daniel Urbanowicz
Senior Portfolio Manager
Municipal Fixed Income

Suzanne Ashley
Internal Relationship Manager

Eric Needham
Director, External Sales and Marketing

Jeffrey Battipaglia
External Sales and Marketing


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