What Moved the Markets?

April experienced spiking coronavirus infection and mortality counts as well as unprecedented job loss. It was also the best month for U.S. stocks in over thirty years, providing a strong reminder that investing in stocks is related to but very different than investing in countries or economies. Bonds gained modestly as the Fed promised to remain accommodative for as long as it takes.

What Caused the Market Rally in April?

Other than a reversal of some of the panicked selling late in March, it isn’t entirely clear what drove the market rally. There was likely demand from rebalancing of pension funds and other institutional accounts, but that only tells part of the story. Stock prices seemed to benefit from increasing knowledge about the virus, even if the news wasn’t all favorable. It remains frustrating how much is still unknown, but we now know many more people have been infected than have been reported and also have a better sense of mortality rates.

Economies Slowly Begin to Reopen

As May gets started, the world is shifting focus toward how to reopen economies. There are many approaches being utilized, each with unique risks and benefits. Broadly speaking, it seems to us that there is increasing impatience with shutdowns, and it appears it would require very bad outcomes to reverse the trend toward reopening businesses and schools. The speed at which jobs are recreated and the degree to which consumers return to previous spending habits will play a large role in determining if gains in April can be sustained.