Blog Post

Dr. Fauci the FED and Oil Move the Markets

Stocks rallied on Monday and Tuesday for no other reason than the number of new cases seems to be slowing in New York.  As the week went on, Dr. Anthony Fauci, the nation’s top infectious disease expert, lowered his estimate of U.S. Covid-19 deaths from the range of 100,000 to 220,000 to more like 60,000. 

Thursday, Russia and Saudi Arabia agreed in principal to end their price war with OPEC+ and other nations agreeing to cut production by an unprecedented 10MM barrels per day for the months of May and June but would continue the previous cuts of 6MM barrels per day until April 2022.  While the U.S. government did not participate in an agreement to cut production, they did cut their forecast a reduction of 1MM barrels per day for 2020 and 2021 due to inventory levels and pricing.  However, states ,including Texas, are considering implementing mandated cuts.  Some analysts were saying that a much larger cut would be needed to restore prices to a sustainable level.

The Federal Reserve announced another 2.3TN plan on Thursday.  The plan calls for loans to small and mid-sized businesses and state and local governments.  In addition, the Fed will be purchasing some types of high yield (below investment grade bonds), collateralized loan obligations and commercial (non-government backed) mortgage-backed securities.

Overall stocks staged their biggest weekly gain since 1974.

Looking forward we expect these gains to be tested as first quarter earnings start in earnest next week.  Factset has reported that the estimated earnings decline for the S&P500 in the first quarter will be a drop of about 10% from a year earlier.  If that happens, this will be the largest quarterly earnings decline since Q3 2009.  Keep in mind that the low of 2009 occurred much earlier on March 9, 2009.  We expect 2nd quarter earnings to be worse than what we will see in Q1, and those will come out in July.  Markets are always looking forward so there is no certainty where we are heading at this point.  Adding to the uncertainty is the fact that many companies have withdrawn any guidance as the end of the virus’ effect on the economy is so uncertain.

Treasury yields rose with the 30-year bond ending at 1.35% and the 10-Year note at 0.729%.  Ironically, Crude oil fell over 19% to $23.19 a barrel and natural gas rose to $1.747 MMBTUs.  The U.S. dollar fell against a basket of currencies and gold prices rose to $1740.60 an ounce.

In economic numbers this week:

  • Germany reported that new orders for manufactured goods fell 1.4% in February but were up 1.5% from a year earlier.
  • The Labor Department reported first time jobless claims in the week ending March 13th rose another 6,600,000 to a seasonally adjusted 16.8MM.  Last week’s unemployment claims were revised up to a record 6.61MM.
  • The EIA weekly oil report is attached.  Also, the EIA reported in the past week:
    • Field production of crude oil dropped from 13MM barrels to 12.4MM barrels per day.
    • Natural gas storage rose by 38BN cubic feet and is above the five year average at this time of year.
  • Baker Hughes reported the number of active oil rigs fell 58 to 504 and the number of active gas rigs fell 4 to 96.


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Best Regards,

Loren C. Rex, CFP®, AIF®, MA                                                              Erik A Smith AIF®

President                                                                                               Managing Partner

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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.


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