April 30, 2020 - Market Update

Yesterday’s FOMC policy statement confirmed there are no plans to end the Fed trade purchase ops of MBS and treasuries in the near-term. Following the meeting, treasuries experienced a modest steepening of the curve and ended the day mixed. The 2yr yield declined (-0.01) to 0.20% while the 10yr yield rose (+0.02) to 0.63%.

Mortgages experienced another solid day on Wednesday, with the best performance coming from the 3.5% coupon. Origination flows spiked to $8.58B for the day and the 5-day moving average rose to $7.49B accordingly.

Stocks surged on Wednesday, as news spread of a potential drug to combat the coronavirus and investors sought comfort in the FOMC policy statement. Q1 GDP results were posted ahead of the bell, reporting a -4.8% annualized drop which equates to the largest decline since 2008. Poor consumer spending was the main catalyst for the results which signal that the US economy is already in a recession. However, the market was quickly able to shrug this off once Gilead Sciences Inc. released their statement regarding a clinical trial on a drug called Remdesivir, which showed that it enabled some patients to recover from the coronavirus at a quicker rate. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, stated that the drug had a “clear-cut significant positive effect in diminishing the time to recovery” based on the trial results. Additionally, the FDA is on track to provide approval for emergency use authorization of Remdesivir beginning next week.

On top of this, further optimism was sparked by Federal Reserve Chairman Jerome Powell, who reassured the public that the Fed plans to continue stimulus measures to stabilize markets as needed. All 11 sectors of the S&P 500 increased, the Dow hit a 7-week high, and the Nasdaq Composite is now within 1% of erasing its YTD losses as market participants remain hopeful about what lies ahead. At the close, the DJIA was up +532.31 at 24,633.86, the S&P 500 grew +76.12 to 2,939.51, and the Nasdaq improved +306.98 to 8,914.71.

In 20Q1, GDP declined at an annualized rate of 4.8%. This means that GDP declined at a rate of 8.8% in just March after growing at 2% in January and February.

Market Levels (May):