Unemployment spiked at an unprecedented rate (and to historic levels) this week as layoffs and shutdowns pick up steam across the country. Corporations are borrowing heavily to ride out the crisis, with new loan totals reaching $200 billion in just the past few weeks. But could carrying so much additional debt spell trouble for the future? At 9.3% of GDP and 30% larger than comparable legislation from the financial crisis, this week's stimulus package will hopefully provide some relief, at least. While Wall Street did post its first back-to-back gains since February this week, volatility is still at historic levels. Investors are piling into fixed income in a search for "safe haven," but distressed bonds are at their highest peak since 2009 and in many cases are exacerbating portfolio losses. Meanwhile, China's industrial profits may be be down almost 40% year-over-year, but the speed of their post-2008 recovery and how quickly current economic output is already normalizing paints a hopeful picture of life on the other side of the coronavirus crisis, but it's yet to be seen if they lifted the lockdown too quickly.
1. With many State unemployment systems overwhelmed, these numbers are likely to get worse before they get better.
Source: WSJ Daily Shot, from 3/27/20
2. U.S. corporations have or are drawing down on their lines of credit, significantly adding to their total debt load....
Source: WSJ Daily Shot, from 3/27/20
3. Will all the existing and newly drawn debt for U.S. corporations mirror the consumer debt crisis of the Great Recession?
Source: WSJ Daily Shot, from 3/26/20
4. Assuming passage in the House, the size of this stimulus dwarfs that of 2009...
Source: WSJ Daily Shot, from 3/26/20
5. Is the speed and volume of information causing an over-reaction?
Source: WSJ Daily Shot, from 3/26/20
6. Smaller companies have fared worse as, in general, there is less cash on hand to weather the pandemic...
Source: FactSet, as of 3/24/20
7. Tech is still out-performing the market...
Source: WSJ Daily Shot, from 3/26/20
8. Other than short term treasuries, the bond markets have not helped and indeed have often contributed to portfolio losses...
Source: WSJ Daily Shot, from 3/25/20
9. How much will COVID-19 effect our economy? Perhaps China can be a guide. Note 2008 and how short lived it was. We will get through this!
Source: WSJ Daily Shot, from 3/27/20
10. China's economy is almost back to normal! This could end as fast as it began... if we ALL stay home/social distance...
Source: WSJ Daily Shot, from 3/27/20
11. Let's go into the weekend with a happier thought...
Source: YouGov, as of 2/11/20
With the yields near record lows and equities still experiencing large daily price swings (negative and positive), could a shift to fixed income potentially do more harm than good? For BCM’s thoughts, read “A Word of Caution on Fixed Income in the Current Market Environment” by BCM Assistant Portfolio Manager Brendan Ryan, CFA.
Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.
