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For A Second Week, The Markets Are Tranquil (Technically Speaking For 4/27-5/1)

May 01, 2020 4:56 PM ETSPY, QQQ, IWM, IEF5 Comments
Hale Stewart profile picture
Hale Stewart


  • The credit markets are still in decent shape.
  • The economy is now in a technical recession.
  • Overall, the markets are relatively tranquil.

For the last 5-6 weeks, I've been focusing more on the credit markets for two reasons: 1.) The then-incoming data didn't represent the true economic picture, and 2.) The primary policy-making goal for the first part of the pandemic was to keep the economy from collapsing due to the extreme nature of the lockdown.

Over the last few weeks, we've developed a clearer picture of the economic damage -- and it's severe. This isn't a surprise; when the wave of lockdowns picked up, economists universally noted that the decline would produce the worst economic data we'd see in our lifetimes. I'm now including it to provide the standard macroeconomic backdrop required for any investment analysis.

Let's still take a look at a few credit market statistics, which are still positive.After spiking, AAA bonds (in blue) and BBB bonds (in red) have moved lower. AAA bonds have returned to their low levels; BBB rates are still elevated, but reasonably so given the situation. CCC yields are still high, but below levels hit during the oil market meltdown in 2015-2016.

Finally, while financial stress inched higher last week, it is still below levels from a few weeks ago. This indicates that the Fed's policy actions have greatly calmed the markets.

Next, let's turn to this week's two key releases from the BEA -- GDP and personal income. GDP was 4.8% lower:Personal income and consumption were also lower; the former dropped 2% while the latter was 7.3% lower (in chained dollars).

Let's intermix the graphs from these reports, starting with consumption data, which is reported monthly:Durable goods purchases (in blue) cratered; they were off nearly 15%. This is understandable since consumers don't make large purchases during periods of economic uncertainty. However, the big reason for the historic drop in consumption was the large drop in service spending (in green), which

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

Good data and commentary.
Addams Family Trust profile picture
simply looking in the mirror? no conclusion?
Wantingtotravelagain profile picture
This week was basically a push...felt worse but don't let that fool you.
Odd title for an article on a day when the DOW drops more than 600 points.
The calm before the storm
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