Global Macro Environment

Global Economies in Free Fall
Economic lockdowns across the world and a plunge in consumer confidence is taking a major toll on the US and global economies. The US economy shrank -4.8% in the first quarter and the second quarter number is almost certain to be much worse. Consumer spending fell 7.5% in March, the steepest monthly decline in records tracing back to 1959. Household incomes fell 2%. New unemployment claims are at unprecedented levels, in the last six weeks claims reached over 30M for the week ending April 25. While initial job losses were concentrated in the retail and hospitality sectors in the states most affected early on, recent job losses have been much more widespread. Suppliers and other industries across the nation are adding heavily to an underemployment rate (the U-6 rate) which now stands at 22.8% and has more than erased the 22M jobs created in the longest employment boom in US history. The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) for April came in at 41.5, down from 49.1 in March, the largest one month decline since September 2008. The ISM Non-Manufacturing PMI printed its lowest reading since the index was initiated at 41.8. The contraction ended 122 consecutive months of growth.

In Europe, economic activity contracted -3.8% in the first quarter, the biggest contraction on record for the bloc, as shutdowns and social distancing policies remain in place. Sweden, the lone outlier, is taking a different approach by not completely shutting down their economy and asking people at risk to shelter in place. This attempted balanced approach between economic and health concerns should be monitored by other countries around the globe. The IHS Markit Eurozone PMI Composite Output Index, which includes manufacturing and services, fell to a new series low in April of 13.6, down from March’s previous record lowof 29.7.

Data in China continues to show improvement in economic activity. Both PMI readings (Manufacturing/Non-Manufacturing) were in expansion territory. Activity in China may be picking up locally, but the global economy is still shut down which is a headwind for this prominent export nation.

Conclusion: The global economy is on track to suffer its worst contraction since the Great Depression era. The consensus appears to be that until there is a medical solution to COVID-19, it seems implausible for the global economy to get back to normal.

Governments Continue to Pull Stimulus Levers
Governments around the globe are doing their fair share to support lending and provide economic relief. The US government is set to borrow a record $2.99 trillion in the second quarter, dwarfing the borrowed height of the 2008 financial crisis by more than a factor of five. In addition to the CARES Act, the $484 billion relief package for small businesses, hospitals and testing was approved. Germany, a country known for fiscal discipline, has declared stimulus measures totaling 12% of their GDP. China has recently declared a larger fiscal package than the one announced in 2008. There is no doubt policymakers are communicating that aggressive action will be taken to support the economy and the eventual recovery.

Source: BCA Research; Strategas

Market Observations

US Equities
What a difference a month makes. US equities had their best month since 1987 as the S&P 500 was up (+12.8%) in April. At the end of the month, US equities had rallied (+30.2%) since the March 23 lows. The disparity between stock market and economic data has been puzzling, but massive intervention by the Federal Reserve has no doubt buoyed market prices and valuations. Large cap growth (+14.8%) outperformed large cap value (+11.2%) as the large technology companies continued their leadership. At the end of the month, the top five stocks in the S&P 500 were about 21% of the index. In sector performance, energy (+30.8%) rebounded from extreme selling pressure in March, despite volatility in the futures market. Utilities (+3.2%) and consumer staples (+7.0%) lagged for the month of April.

International Equities
Developed international equities were up (+6.5%) at the end of April, while emerging markets finished higher at (+9.2%). The growth outperformance relative to value story continued overseas as developed growth returned (+7.4%) vs. value (+5.2%), and emerging growth returned (+9.8%) vs. value (+8.5%).

Fixed Income
The 10-year treasury yield continued to slide in April from 0.7% to 0.6%. The Bloomberg Barclays US Aggregate Index rose (+1.8%) during the month. The municipal market has been an interesting area to watch during COVID-19 as financial stress continues to elevate across states. Economic stoppage, tax-filing deferrals and a severe decrease in revenue sectors such as airports, hospitals and universities will all weigh on municipal finances. All of this resulted in a robust and popular financial aid response by the federal government. However, investors are still taking a wait-and-see approach to this market as the Bloomberg Barclays Municipal Aa+ 1-10 Year Index was flat for the month (+0.0%).

Real Assets
Real assets reversed course in April and significantly outperformed global equities driven by strong performance in Master Limited Partnerships (+49.6%). Natural resources (+13.8%) and real estate (+7.1%) also had a positive month. Storage capacity for crude oil disappeared at a rapid pace and caused oil prices to make history as the price for oil to be delivered in May fell below zero, the first ever negative contract.


This commentary represents the consensus of the Oxford Investment Fellows as of 5.11.20, is subject to change at any time due to market or economic conditions or other factors and offers generalized research, not personalized investment advice. This commentary offers generalized research, not personalized investment advice. Statistical data is derived from third party sources believed to be reliable and has not been independently verified by Oxford. Content is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment and tax professional before implementing any investment strategy. Oxford Financial Group, Ltd. is a Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission and is headquartered in Carmel, Indiana. Registration does not imply a certain level of skill or training. For more information about our firm, or to receive a copy of our disclosure Form ADV and Privacy Policy call 800.722.2289 or contact us