(New York)

In what was one of the most emotional and scary markets-oriented interviews possibly ever, famed hedge fund manager Bill Ackman gave some very stern warnings to America yesterday. Ackman favors a complete shutdown of the US economy for 30 days, instead of a gradual rollout of measures. “America will end as we know it. I’m sorry to say so, unless we take this option”, he argues. He continued “Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown”. He further warned companies to stop buybacks because “hell is coming”.

FINSUM: Whatever you may feel about the health threat of the virus itself, the economic situation with the coronavirus has escalated so quickly that it is hard to know what forecasts are outlandish and which need to be taken seriously. What we do know is that there is no end in sight to the contain measures (and thus the economic damage), which means there is going to be a huge wave of unpaid bills by consumers and a resulting financial crunch for many companies.

(New York)

Goldman Sachs has put out some very concerning forecasts this morning. The bank thinks US GDP is going to shrink massively in Q2, down 5%. Goldman also thinks the S&P 500 won’t find a floor until it hits 2,000, another ~25% below current levels. The bank also believes 50% of Americans will contract the virus and that “peak virus” will occur within 8 weeks. Despite the gloomy predictions, the bank contends the markets will recover quickly in the second half of the year, with the S&P 500 rising back to 3,200.

FINSUM: This seems like a realistically bearish call on what is happening, with a very bullish medium-term outlook. Our gut instinct is that this seems a good prediction.

(New York)

We look like we are on the brink of a big downgrade in bonds that could spread chaos across the fixed income markets. Big rating agencies have not taken concrete steps yet, but investors have been assuming they will, as yields on BBB rated bonds have jumped, with $300 bn now above the 6% threshold. Many high-yielding companies, like airlines and cruise lines, have seen their yields skyrocket. According to Wells Fargo, “As the probability of a recession rises, so does the potential for downgrades and defaults, leaving us unwilling to wave the white flag for corporate credit”.

FINSUM: The downgrades are inevitable at this point, but at least the market has already been adjusting, so it will be less chaotic when it happens.

(Washington)

The Fed sent a big message yesterday (or at least it tried to). The US central bank made a surprise Sunday move on interest rates, slashing them to near zero and announcing more asset purchases. The cut amounted to a full percentage point in addition to $700 bn of asset purchases and various liquidity boosting measures. Despite the efforts, markets have not reacted well to the news. Two circuit breakers have been hit already since the announcement and the Dow was down as much as 10% in early trading today.

FINSUM: The Fed is taking the right steps, but doing them in the wrong way. Better guidance and signaling would have been very welcomed.

(Chicago)

All the market focus has been on the Dow, but small caps beat the bigger index into a bear market. Even before the big falls of the last few days, the Russell was down 25%. Small companies account for about half of US economic activity and tend to feel the strongest effects when the economy falls, explaining the sharp decline. However, small caps also tend to outperform in the three months after such falls, as they also disproportionately benefit from an economic recovery.

FINSUM: Small caps were trading at all time highs right before this plunge, and as this situation begins to clear, it seems like a very good buying opportunity.

(New York)

Even advisors who use fixed index annuities frequently may not be aware that under the new SECURE Act, the products have gotten some preferential new tax treatment. In particular, clients can now rollover 401ks, 401bs, IRA, or pension payment into a fixed index annuity tax-free. This obviously comes in addition to the fact that FIAs are tax deferred to begin with.

FINSUM: This seems like a very useful addition to the FIA universe provided by the Secure Act. Advisors should be aware.

(Houston)

Generally speaking, when oil prices fall it is considered good for the economy as it unleashes excess consumer spending. This is what happened in the last big drop in 2014-2015. However, this time around, there are likely to be no winners from the drop. Because the huge fall in prices is coming at a time of significantly reduced economic demand because of the coronavirus, it is hard to imagine that much excess economic activity will be created to account for the drop in oil-related industries.

FINSUM: Supply and demand are tumbling simultaneously across the economy (not just in oil), so it does not seem this will be a net positive like it has been in the past.

(New York)

Markets are in a very rough place right now, with benchmark indexes approaching bear market territory on Monday. Energy and travel have been the epicenter of losses, but every sector s getting hit badly. With that in mind, what is the best sector to invest in right now? The answer may be—somewhat surprisingly—financials, and XLF in particular. Whereas the S&P 500 as a whole was in the 99th percentile of valuations historically before the big fall, financials were only in the 60-70% range. Now with the big tumble in prices, financials are in the bottom 1% of their ten-year valuation range.

FINSUM: So rates and yields are super low, which obviously hurts banks’ net interest margin and has led to financial stocks getting pummeled. However, they are so cheap that this is a very good long-term entry point.

(New York)

In what comes as a very important sign for the wider US economy, lower rates and yields are apparently not flowing through to mortgages in the way that many expected. One of the bright economic spots in the big market volatility recently has been the hope that much lower rates would stimulate more housing demand. Mortgages rates have actually risen by 20 bp since March 5th despite the huge fall in Treasury yields. Even since mid-February (when the market was peaking), mortgage rates have only dropped 15 bp to 3.35% for a 30-year fixed.

FINSUM: This is very important because it takes a 75 bp fall for a typical homeowner to save money on a refinancing. We are not even close to that yet, so hard to see any economic boost coming.

(Washington)

The “mini Super Tuesday” results are in from yesterday’s six primaries, and Joe Biden has taken an even more commanding lead. The biggest prize he won yesterday was Michigan, giving him a very strong lead heading into next week’s primaries, which includes Florida. He is almost untouchable at the point, but a win in Florida—which is forecasted—would make his advantage insurmountable.

FINSUM: Two thoughts here. Firstly, Sanders is the most successful non-winning candidate ever. He changed the party and galvanized the center, which ultimately led to his losing, but transformed the vision of the party. Secondly, Biden is more dangerous for Trump. He has the right middle-of-the-road policies and demeanor to attract moderates and those whose eyes might be wavering from the president.