Equities pulled back this week as the rhetoric on China intensifies. The S&P 500 was down 3.1% while small caps fell 7.2%. Emerging markets and foreign equities were also in the red. Yields failed to rally and resulted in the Bloomberg Barclays U.S. Aggregate Bond Index also falling into the red for the week. Despite the equity drop, oil prices were up 59% on the week and over 100% in the last two weeks.

Personal consumption expenditures fell 7.5% in March. This far exceeded the previous low of -2.1% seen in 1987. The rest of the economic data was at or near record lows. ADP reported 20 million job losses for the month of April, which was foretold by the weekly jobless claims. The monthly employment report will come out Friday but should have little to no effect on the market as the data is mostly old news.

Despite the record drop in economic data, more than 15% of the Russell 1000 companies, a proxy for larger public companies, are up year-to-date. The winners are mostly comprised of biotech companies that could reap increased demand due to the virus, as well as technology companies viewed as leaders of the next growth phase. Amid the constant focus on technology companies, the NYSE Arca Gold Miner Index is up 14.5% this year to little fanfare. Gold has outperformed the S&P 500 by 26% year-to-date. It is the largest outperformance in the first four months of the year since 1973.

Another interesting development is copper prices. The cyclically sensitive commodity is down year-to-date; however, the price is holding well amid economic data on par with the worst in history. The current price around $2.38 per pound is well above the 2008 low of $1.25 per pound, as well as the average price of $1 per pound in the 1990s. It has been noted that copper supplies are insufficient to meet the anticipated needs for emerging market housing growth as well as technology innovations such as electric vehicles.

It could be possible the higher lows on copper prices is foretelling rising future inflation, but the near-term inflation expectations continue to fall. Inflation expectations remain depressed as low rates beget low rates. High debt levels pull forward demand, which in turn pulls down future growth. The highest 10-year government bond yield in developed markets is Iceland at 2.38%. Only three out of the 25 developed countries exceed 1%.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
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