Good morning, friends.
Watch the CNBC headlines and you would probably chalk last week up as a good one: The S&P 500 climbed 3%, while the Dow Jones Industrial Average (DJIA) had its best two-week performance since the 1930s. Markets were buoyed by good news on several fronts:
Hope that America will soon “re-open for business.” President Trump unveiled a three-phase plan, though states will make the ultimate decisions on timing.
A report by Gilead Sciences on progress on a treatment for COVID-19.
A statement by Governor Andrew Cuomo that New York, one of the hardest-hit areas in the US, looks to be “past the plateau” of new cases.
Combine this with the Federal Reserve’s stimulus packages, lending programs, and asset purchases, and one can make the case for a “V-shaped” economic recovery.
There’s more to the story than the performance of the large companies that make up those indices. While the S&P 500 was up for the week, the Russell 2000, an index representing small cap stocks, was down 1.4%. Year to date, the S&P 500 is down about 11%, while the Russell 2000 is down more than twice that, at 26%.
And in fact, the performance of small cap stocks feels more consistent with some of the bad economic news last week:
Retail sales have plummeted.
JCPenney and Neiman Marcus missed their first bond payments.
Big banks reported large losses.
Unemployment claims topped 20 million in four weeks.
Why the difference in performance? It’s likely because small companies tend to be more sensitive to economic growth than large ones; thus the Russell 2000’s underperformance may be telling us that things are going to get worse before they get better.
That’s not the only corner of the market that is flashing warning signals: “safe haven assets,” like gold and US Treasurys, have risen in value along with large cap equities. Gold is up 15% year to date, and the benchmark US Treasury 10-year note yield has fallen to 0.61% from 1.26% in mid March (bond prices rise when yields go down).
This is unusual and notable: More typically, safe haven assets and equities move in opposite directions. This is because investors who seek safety flee equities — and when they feel bullish, they prefer equities rather than safer assets.
So the markets are giving us mixed messages: The fast rebound in large cap stocks gives us hope of a faster recovery — but increases in gold and US Treasuries, as well as the performance of small cap stocks, tell us to expect a longer downturn.
Confidence and hope drives markets higher; uncertainty and fear drive prices lower. Right now, we seem to have both ... and that likely points to more volatility ahead.
A few thoughts:
If we’ve spent much time together (and certainly if we’ve shared a glass of wine), then at some point you’ve probably heard me ask a rhetorical question: Who thinks the financial crisis of 2008 would have been worse if more women had been in positions of power on Wall Street?
I’ve never had a single person raise their hand, to say it would have been worse. Not one.
And research backs this intuition about the risk-reducing power of diversity.
In last week’s Ellevest newsletter, What the Elle, I added another rhetorical question: Who thinks the management of this pandemic — and the resulting destruction of wealth — would be worse if women were in charge?
Yeah, me neither.
And there’s some evidence that the countries with women in charge have managed this pandemic better. We’re looking at you, New Zealand and Germany.
Our societally ingrained knee-jerk aversion to women seeking power has cost us wealth. And now it is arguably costing us lives.
There are lots of lessons to be learned and acted upon on the other side of this thing. This is one of them.