Market Update 4.16.2020

Key Takeaway Messages:

• Risk is at the forefront of our work and as such we look at many indicators and data points/trends to analyze the amount of risk in current market conditions, and how much exposure we should have with our client portfolios.
• REPO market, which points to credit availability, has responded positively to Fed stimulus. We are watching to see if this will hold.
• The promise of “unlimited cash” into our economy from the Fed is having positive short-term effects. We are paying very close attention to the longer-term implications of the Fed intervening in such a big way, as such an influx of cash can lead to economic instability.  
• We do not underestimate the net impact of easy money from the Fed and central banks around the globe. This tends to grab hold eventually and get things moving.  
• Commercial paper (corporate liquidity) has improved a bit with the stimulus, but it’s still too elevated for our comfort. We are watching this closely as well.
• The small business sector is being significantly impacted by current conditions. We are monitoring how this will continue to play out in our overall economy and markets. 
• Banks continue to be cautious about lending to each other. We are still better off now than 2008, but this is a trend we are monitoring closely.
• Credit default swaps (probability of company default) are not as high at 2008 and have come down a bit which is a good sign. 
• Record levels of unemployment and drops in manufacturing, each leading indicator of where the market is going, is at significantly higher levels than past recessions. This is obviously very concerning due to the fact that the consumer is 70% of the economy.
• Consumer confidence is beginning to trend downward. Past market corrections and contractions have been isolated to a few sectors, but the widespread and global impact of this current pandemic continues to have far-reaching implications, including consumers becoming more conservative.  
• The market has completed the 50% retracement that we expected. We are watching all of the data now to see what directional trends will emerge from here. All of our key indicators have improved but warrant a wait and see. 
• We are starting to see the Coronavirus curve flatten in the data, which is a good sign. Now we need to see how the economy begins to come back online, what longer-term effects are going to play out and how much damage has really been done to capital markets.
• The economy was doing exceptionally well before this crisis, so we will see how much that strong starting position can help us rebound.
• We will continue to keep a conservative position with our portfolios and maintain healthy caution until we know more about the trend of longer-term impacts. We are watching closely for our indicators to tell us the right time to re-enter the markets, and our data clearly shows that this is not the time. 
• We are in a good cash position to take advantage of emerging opportunities with companies that are well-positioned for the recalibrated economy…when we feel the time is right.

As always, it is our deep honor and pleasure to serve you and we thank you for your trust in us. May you have 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