Market Update Summary (5/29/2020):

• New data shows 47% of small businesses surveyed will not be able to restart their businesses post-pandemic.
• We are concerned that record high unemployment numbers (almost 60 M unemployed) will remain higher than anticipated if these 47% of businesses are not able to reopen and rehire.   
• We do not believe the market is fully accounting for this supply/demand discrepancy in jobs, and we are playing attention to longer-term implications and market corrections.
• We question how long such widespread unemployment support can continue to prop up the economy and we are watching closely to see what will happen when this relief runs out and workers attempt to re-enter the workforce.
• A critical look at the market shows that only 5 players are responsible for the rally we have been seeing recently. Remove those 5 companies and the remainder of the S&P 500 is down 8% YTD.  
• A stock market isn’t truly healthy beneath the surface when the market strength is concentrated within 5 companies. We want to see more wide-spread gains across more companies and sectors before we will feel confident that we are on solid ground. 
• We just hit an important technical indicator, the 200 Day Moving Average. If we can consolidate here and begin to see more companies participating in the market upside, we will feel more confident about market conditions.
• There is good liquidity in the market and our risk indicators are tightening, but the risk levels are still too elevated for our comfort.
• We’ve added a few strategic positions to our portfolios and continue to evaluate other positions for the right deployment of our cash reserves.
• We are moving slowly and in no rush to re-enter as we watch closely all of the compounding factors that will signal the future direction of our market and economy.

We hope everyone is doing well and spending some time outside in this beautiful weather!  Please contact us with any questions or if you’d like to discuss your account.

Best regards,

The Willow Team
+1 413 236 2980

Key Risk Indicator Updates:

• Significant Fed intervention has worked in the short term and is yielding liquidity in the REPO market (which is the oil in our economic engine and points to credit availability). We are watching to see if this will hold, especially when stimulus backs off.
• Fed loans like PPP have caused commercial paper (corporate liquidity) metrics to move in the right direction. The data is still elevated, but we like the direction it is headed.
• During past financial crisis, businesses were still operating. We are paying close attention to the effects of this shutdown and how the ramp-up period will play out as the economy comes back online.
  
• LIBOR spread spikes can signal problems in financial markets. The current spike has pulled back significantly, but we are still seeing this indicator holding at levels similar to last financial crisis.
• The risk of investment-grade corporations going bankrupt is still elevated. Again, it has come down, but we would like to see this normalized.
  
• Our housing market data is showing big questions about the health of this sector. We are keeping a very close eye on this data, as it tends to be a leading indicator for the entire market.
• We continue to see record levels of unemployment and drops in manufacturing. However we are also seeing income levels holding steady or increasing slightly with unemployment relief, which may help keep the economy steady. The full implications of these significant metrics will take time to play out.
• The back & forth movement in the market right now is actually a good sign, as it shows the market may be consolidating at this level. But it would not be unusual to retest the low end of the market drop, even at this point.    
• We are suspect of how everything will play out as the economy tries to come back online. Our risk indicators still warrant caution and we will be very mindful going forward.
• We are not on solid ground yet and we will continue to keep a conservative position with our portfolios until we know more about the trend of longer-term impacts. 
  
• We are in a good cash position to take advantage of opportunities with companies that are benefiting from current market conditions.

Wishing you health, peace and prosperity.  Please don’t hesitate to contact us with any questions or concerns.

Best regards,

The Willow Team
+1 413 236 2980