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Investing.com – Wall Street ended the week on a high note with the major indexes in the green Friday. The anticipation of economies opening up is helping sentiment.
And while investors are looking for where to put cash to work, there were already some signs this week that many are following an old market friend.
Also this week, leading indicators took on more prominence than maybe ever before. And if you dug deep enough into the Fed’s Beige Book, not everything there was negative.
Here are three things that flew under the radar this week.
1. Fed’s Shopping List a Hit
Earlier this week, President Donald Trump outlined a three-pronged approach to get the wheels of the economy turning once again. And investors appear hungry to put money to work. But as the debate over value versus growth heats up, some on Wall Street are keeping it simple.
“Follow the Fed,” Blackrock (NYSE:BLK) said earlier this week in a blog post.
“We will follow the Fed and other (developed market) central banks by purchasing what they’re purchasing, and assets that rhyme with those,” said Rick Rieder, head of BlackRock’s global allocation team.
For years, investors have invested safely in the knowledge that when financial conditions turn ugly, the Fed will turn up to save the day.
Just a few months ago in October, the Fed stepped up purchases of short-term debt to calm overnight lending markets, a move that many believe led to a months-long rally before the pandemic erupted.
Over the past month the Fed has gone on a shopping spree that took its balance sheet above $7 trillion, so far, in a bid to stave off a coronavirus-led economic crisis that some have claimed could rival the deepest and darkest downturns of yesteryear.
A myriad of asset purchases including Treasuries, investment-grade debt, ETFs and junk bonds made the list.
And with the well of Fed stimulus thought to be bottomless, others on Wall Street are also keeping one eye on the central bank’s shopping list despite the underlying economy showing recession symptoms, with record jobless claims over the past four weeks.
“Corporate bond spread analysis shows that credit investors are already changing their buying patterns to focus on sectors ‘adopted’ by the Fed,” Wells Fargo (NYSE:WFC) said in a note.
Investors ramped up U.S. junk bond purchases to a record $7.66 billion in the week to April 15, according to Refinitiv Lipper.
“You can thank the Fed,” Greg Zappin, a money manager at Penn Mutual Asset Management, told Bloomberg. “High-yield spreads have tightened about 300 basis points and the market is open to issuance, so I’m not surprised money is flowing in.”
2. Another Grim Record Number
The Conference Board’s monthly measure of leading economic indicators is usually a barnburner when it comes to moving the market. The Conference Board’s own consumer confidence index gets much more attention, for example.
But with the markets fixated on how bad things could get from a global economic shutdown, the more forward-looking the numbers are the better.
Friday’s Leading Economic Index (LEI) says things are historically bad.
The LEI sank 6.7% to 104.2 in March, compared with a 0.2% drop in February.
“In March, the U.S. LEI registered the largest decline in its 60-year history,” said Ataman Ozyildirim, senior director of economic research at The Conference Board, in a press release.
“The unprecedented and sudden deterioration was broad based, with the largest negative contributions coming from initial claims for unemployment insurance and stock prices,” Ozyildirim said. “The sharp drop in the LEI reflects the sudden halting in business activity as a result of the global pandemic and suggests the U.S. economy will be facing a very deep contraction.”
Thee components the composite index include average manufacturing hours, jobless claims, new orders volume, ISM new orders, capital goods orders, building permits, the S&P 500, M2 money supply, interest rates spread and consumer expectations for business conditions.
3. Small Silver Linings Playbook
While the data remain historically bad across several indicators, there were some anecdotal green shoots across several regions in the Federal Reserve’s Beige Book assessment of the economy out this week.
Boston Fed
“One tourism contact reported that coastal communities that rely on seasonal business are cautiously optimistic about a snap-back in visitors who are driving-distance away soon after advisories are lifted, reflecting pent-up demand from cancellation of planned vacations throughout the spring.”
New York Fed
“Looking ahead, contacts in manufacturing, finance, and professional & business services said they expect staffing levels to hold steady from current levels.”
Philadelphia Fed
“According to several firms with global perspectives, supply chain issues with China have eased, and China is mostly back to work.”
Richmond Fed
“One egg farmer said that (a spike in demand) probably saved many farmers as selling prices had been depressed in recent months.”
Atlanta Fed
“Despite the decline in (manufacturing) activity, some firms suggested that new orders were holding steady or even increasing due to changes in product demand. Supply delivery times were reported to be increasing.”
Chicago Fed
“A contact in southern Wisconsin reported greater demand from restaurants for remodeling work as owners anticipated eventually reopening.”
Dallas Fed
“Wheat demand and prices rose due to increased purchases of breads and pastas during the coronavirus pandemic … in the livestock side, pasture conditions were favorable and prices for cattle ready for feedlots rose because of pandemic-related increased demand for beef.
