By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH – Apr. 3, 2020

Apr 3, 2020 | 11:25 AM

Big Picture

U.S. Markets Slightly Off in Wild Week for Oil; Dow, S&P Have Worst Q1 Ever

While the impacts of the coronavirus lockdown continue to weigh on markets and global economies, oil prices took centre stage for much of the week. On Monday, oil fell 6.6% to $20.09 a barrel, as quarantine measures are leading to the biggest decline in oil demand in history. Despite the plunge in crude prices, energy stocks lifted the TSX on Monday, as the market looks to Ottawa for signs of support for the energy sector. All three U.S. markets were also up, with the Dow gaining nearly 700 points, and the Nasdaq adding 272.

Canada’s main stock index was up again on Tuesday by nearly 350 points, as a jump in oil prices boosted energy stocks following news that the U.S. and Russia had agreed to talks to help stabilize prices. Despite the week’s early gains, tumbling crude prices have dragged Canadian energy stocks down nearly 50% for March, the worst monthly decline ever. The TSX fell about 22% for Q1, its worst decline since 2008.

Meanwhile U.S. markets closed down nearly 2% on Tuesday. It’s been the worst Q1 ever for the Dow and S&P. The Dow fell roughly 23% over the past three months (the worst quarter since 1987), and the S&P 500 dropped about 20%, its worst quarterly decline since 2008.

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It was another rough day for N.A. markets on Wednesday after President Trump issued a stark new warning on the spread of Covid-19, projecting that U.S. deaths could reach as high as 240,000. U.S. markets were down nearly 4.5%, with the Dow shedding 974 points, while the TSX surrendered 502 points.

N.A. stocks rallied on Thursday as hopes for a truce in an oil-price war between Saudi Arabia and Russia drove gains. Crude prices posted their biggest-one day gains on record–roughly 25%– after Trump said he expects Russia and Saudi Arabia to announce a major oil production cut. However, investors continue to be hit by bad economic news, as initial jobless claims in the U.S. last week rose to 6.65 million. According to the Wall Street Journal, one forecasting firm has projected that the U.S. could lose nearly 28 million jobs by May.

TSX Boosted by Oil Gains, U.S. Markets Down Slightly

For the four days covered in this report, the Dow lost 224 points to close at 21,413, the S&P 500 shed 14 points to settle at 2,527, while the tech-heavy Nasdaq dropped 15 points to close at 7,487. In Canada, the TSX added 410 points to end at 13,098.

Strategy

March’s labour market report likely the tip of the iceberg of what is to come

March’s payroll survey captured a larger-than-expected share of job destruction this month, as nonfarm payrolls fell by701k versus consensus at 150k. Losses were concentrated in the service sector, with the leisure and hospitality segment plunging by 459k.The unemployment rate has started a steep rise, 4.4% vs. 3.5% previously, and according to consensus estimates it could climb to a post-WWII peak in April or May. Average hourly earnings rose 0.4%, outpacing consensus estimates for a 0.2% increase, though this likely reflects the early exit of low wage workers which pushed average hourly pay higher. This phenomenon could persist for a few more months, only to plunge as labor slack increases sharply. Recall, nearly ten million people filed jobless claims in recent weeks according to data from the U.S. Labor Department, as many stores and restaurants were forced to close across the nation to mitigate the outbreak. This week’s data, while shocking, likely only reflect the start of the labour-market damage, as survey responses were likely gathered before broad closures were announced and thus, likely do not fully reflect the extent of the impact. Revisions to March numbers included in April releases will likely show a more pronounced deterioration of labour market conditions in March than initially have been reported.

Disclaimer

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