May 12, 2020 - Market Update

Daily originations continue to be elevated, with reported volumes ranging from $8.0B to $9.5B.  The Fed purchased their maximum allocation of $5B in MBS across two operations bringing its QE4 purchase total to a staggering $628B. 

The Fed will conduct two purchase operations totaling up to $4.875B starting with $1.625B UMBS15 2%s and 2.5%s followed by up to $3.25b UMBS30 2.0%s through 3.0%s.  Overnight, the Fed also announced that they will begin buying corporate bond ETFs today.  This is a milestone effort to support the economy and financial system as the Fed has never previously bought ETFs.

U.S. equities were mixed on Monday as investors assessed the latest moves around the globe to relax restrictions amid the coronavirus pandemic.  The S&P 500 ended the day flat while the Dow Jones fell half a percent.  The Nasdaq Composite climbed for its sixth consecutive day, closing 0.8% higher on continued strength in the technology and health-care sectors.  First-quarter earnings season is nearing the final innings, with 440 of the companies in the S&P 500 having reported data.  In aggregate, earnings are seen to have dropped by 12.1% in Q1, compared with a year ago.  Shares of Marriott and Under Armour both plunged after dismal earnings and forecast prints.

The 20.5 million job losses in April wiped out a decade of job gains and are ten times the previous record monthly job loss of 2 million set in 11/45. The only silver lining, 18 million of those losing their jobs self-classified as “temporarily laid off.” These jobs can come back relatively fast if things go right;