And that’s a wrap on Q1. As we close out a quarter for the history books, let’s hope there are better days ahead in Q2. The recent equity rebound may have convinced some optimists out there, but with confirmed cases of Covid-19 continuing to climb and the White House warning us to brace for a “very painful two weeks,” we fear any celebration may be premature. Record high volatility could make for another violent swing downward… and justify a growing number of 1929 comparisons… The oil price war continues to drag on in the midst of evaporating demand, and plummeting business activity has led to an avalanche of sharply contracted Q2 GDP estimates. Soaring corporate debt and worsening business conditions has led to many ratings revisions in the bond market, which may not be a bad thing as—in our opinion—they’d been growing inflated. Finally, though there remains some question as to the accuracy, manufacturing numbers out of China indicate there may be some hope in store for a U.S. recovery not too far in future. The question is, with the world on lockdown, is there enough demand to meet the growing supply?
1. Has the stock market rebound gotten ahead of itself?
![equity rebound](https://blog.investbcm.com/hubfs/4.1%20market%20rebound%20gotten%20ahead%20of%20itself.png)
Source: WSJ Daily Shot, from 3/31/20
2. According to Bespoke Investments, March was the most volatile month ever…
![S&P 500 monthly volatility](https://blog.investbcm.com/hubfs/4.1%20march%20most%20volatilie%20month.png)
Source: WSJ Daily Shot, from 4/1/20
3. A sobering comparison…
![dow industrials 1929 comparison](https://blog.investbcm.com/hubfs/4.1%20comparison%20to%201929.png)
Source: TWSJ Daily Shot, from 4/1/20
4. Commodities have been decimated…realizing rolling 10-year returns only seen in the Great Depression…
![commodoties 10 year returns](https://blog.investbcm.com/hubfs/4.1%20Commodities%20decimated%20Great%20Depression.....png)
Source: WSJ Daily Shot, from 3/31/20
5. Let’s not forget the other Black Swan; the U.S.’s attempt to get Russia and the Saudis to the negotiating table failed…
![oil prices vs. 2008](https://blog.investbcm.com/hubfs/4.1%20oil%20other%20black%20swan.png)
Source: WSJ Daily Shot, from 4/1/20
6. Anyone can opine, but no one knows…
![Q2 2020 GDP estimates](https://blog.investbcm.com/hubfs/4.1%20gdp%20estimates.png)
Source: WSJ Daily Shot, from 4/1/20
7. U.S. corporate debt increased by ~$200 billion in March…
![U.S. corporate debt](https://blog.investbcm.com/hubfs/4.1%20corporate%20debt%20increased%20by%20~$200%20billion%20in%20March....png)
Source: WSJ Daily Shot, from 3/31/20
8. The rating agencies are using the Covid-19 crisis to “more properly” rate companies…purple denotes companies that were downgraded to junk…
![credit downgrades](https://blog.investbcm.com/hubfs/4.1%20ratings%20downgrads%20using%20crisis%20approp.png)
Source: WSJ Daily Shot, from 4/1/20
9. This is the crux of the issue…if tenants can’t pay rent, how does the landlord pay the mortgage? If the landlord doesn’t pay, then the banks are in trouble all over again!
![can't afford housing](https://blog.investbcm.com/hubfs/4.1%20cant%20pay%20rent%20mortgage.png)
Source: WSJ Daily Shot, from 4/1/20
10. I’m not sure we can count on this type of rebound as many view the official Chinese data with skepticism…but the rebound can be real and fast…A reading over 50 indicates that manufacturing activity is growing.
![china manufacturing pmi](https://blog.investbcm.com/hubfs/4.1%20Chinese%20man%20pmi%20-%20skepticism...but%20rebound%20can%20be%20real%20and%20fast....png)
Source: WSJ Daily Shot, from 3/31/20
11. IHS Markit confirmed the official Chinese rebound…
![markit china manufacturing pmi](https://blog.investbcm.com/hubfs/4.1%20ihs%20man%20confirm%20chinese%20rebound.png)
Source: WSJ Daily Shot, from 4/1/20
12. In the midst of Covid-19, U.S. manufacturing has followed China’s path down and, with reasoned hope, should also follow them on the way back up…
![dallas fed manufacturing index](https://blog.investbcm.com/hubfs/4.1%20dallas%20man%20index%20-%20follow%20china%20down%20up.png)
Source: WSJ Daily Shot, from 3/31/20
13. …And the nation as a whole is feeling the effects…
![weekly economic index new york fed](https://blog.investbcm.com/hubfs/4.1%20NY%20economic%20indiactor-nation%20feeling%20effects.png)
Source: WSJ Daily Shot, from 3/31/20
14. The Dallas Fed report was influenced by the oil & gas industry’s decline. The Midwest fared much better in March.
![Chicago business barometer](https://blog.investbcm.com/hubfs/4.1%20midwest%20better%20than%20dallas%20fed.png)
Source: WSJ Daily Shot, as of 4/1/20
15. South Korea, a Covid-19 hotspot, did not show a manufacturing collapse…down, but not out!
![south korea manufacturing pmi](https://blog.investbcm.com/hubfs/4.1%20south%20korea%20manufacturing%20not%20down.png)
Source: WSJ Daily Shot, from 4/1/20