April 2020 Newsletter


Welcome to the April 2020 Newsletter. This month, we’ve shared details about the coronavirus, its effect on the economy, and our need to fight this pandemic together. Please read on for more information.


We feel we must dramatically change the format of our newsletter this month due to the COVID-19 virus, the record number of people infected, and the resulting damage to the economy. When it’s appropriate, we will return to our normal format.

The positive economic data from January and February is already outdated as the economy is in a very different place today from just one month ago. We expect to see worsening economic figures over the next several weeks as many companies have shut down, placing millions of workers on unemployment. Once efforts to slow the spread of coronavirus show signs of working, we are hopeful that efforts to reopen business in less affected areas will be successful.

Employees should continue TO BUY LOW – to continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan or IRA. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis.

The Economy

Piggy bank on lots of money bound together


U.S. nonfarm payrolls rose in February by 273,000. The January payroll number was revised up to 273,000 from 225,000. The December payroll number was revised up to 184,000 from 147,000. The rolling three-month payroll average increased to 243,000 this month from 211,000 last month. These are terrific monthly numbers, but COVID-19 will drive these numbers unbelievably lower.

Unemployment Claims

We seldom report the weekly unemployment claims numbers in this newsletter, but the most recent data is shattering.

March unemployment claims

The new record of over 3 million people filing for unemployment benefits is almost five times the previous record. Unfortunately, small and large businesses have and will continue laying off employees for the foreseeable future.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the third estimate of 2019 fourth-quarter GDP was 2.1% – the same as the first and second estimates. For 2019, GDP growth was 2.3%.


Annual inflation remained flat in February at 1.8% from January’s adjusted 1.8% as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, rose to 1.8% from January’s adjusted 1.7%.

Long-term inflation expectations can be determined by calculating the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year0.49%
10 Year0.87%
30 Year1.19%

Inflation numbers above are 0.53% lower (on average) than last month’s numbers.

The COVID-19 Recession

businessman and woman planning their finances

Temporarily, we will use the above title for the current recession and bear market. We know there is an unemployment crisis and too many family crises with hospitals overflowing. But our focus within this newsletter below is in three parts: The stock market, the virus, and the upcoming economic recovery.

1. Stock Market

If the stock market were a beautiful forested mountain, it now has 30% of its trees cut down – not a pretty picture. For those who have not sold or sold very little, it’s too late to sell any more at these low levels. Hold onto what you have.

For those with cash, the bond market is even more treacherous than the stock market so for now, keep your money in cash.

We will rely on our technical analysis and internal market measurement tools to determine when the current period of stock market instability has run its course. Our approach involves the process we have used on numerous prior occasions to identity market bottoms. The elements are:  1) The establishment of an initial market bottom; 2) A market rally which fails and rolls over; and 3) The successful test of the initial bottom area, which can trigger a buy signal leading to a sustainable market rally.

Despite its severity, the COVID-19 pandemic could be a short-term stock market event lasting one or two quarters. Therefore, we favor retaining existing stock market holdings with the understanding that each investor knows their own risk tolerance. We suggest continuing with dollar-cost-averaging on weakness for those looking to add to their stock market positions. If all goes well, a buying opportunity of important could develop in the weeks or months ahead.

2. Virus Update

There is perhaps no better way to show the ugly status of the virus in the U.S. other than the four charts below. Note the second and fourth charts below are on a logarithmic scale.

daily new COVID-19 cases in the U.S.
total COVID-19 cases in the U.S.

The distressing two charts below on deaths in the U.S. continue to show an upward trend. The daily deaths chart below is expected to peak at 2,000 per day sometime in April. The low numbers for March 29 on the next chart were due to incomplete data from New York.

daily new COVID-19 deaths in the U.S.
total COVID-19 deaths in the U.S.

Good Medical News Counteracting the Virus

The innovation within our medical community has been astonishing! See their progress to date.

Virus Testing – Due to inconclusive results from some early test procedures in February, bottlenecks developed at the CDC in Atlanta. On most days in February, fewer than 100 tests a day were successfully processed. But by February 28, state and local laboratories were permitted to begin testing as per the Emergency Use Authorization by the FDA.

Then the medical revolution began! On March 5, LabCorp announced nationwide availability of a new test. Quest Diagnostics made a similar announcement on March 9. On March 12, Mayo Clinic reported to have developed a test. On March 13, Roche Diagnostics received FDA approval for a test that could be performed in 3.5 hours. On March 19, Cepheid Inc received FDA approval for a new test that only takes 45 minutes. On March 27, Abbott Labs announced a new COVID-19 test that delivers positive results in 5 minutes and negative results in 13 minutes.

COVID-19 Treatment – Gilead Sciences is in Phase 3 trials of their drug Remdesivir. The goal is to reduce fever and help patients get out of the hospital. Johnson & Johnson is working on a potential treatment for patients who are already infected. Eli Lilly is working to develop an antibody treatment for coronavirus infections. 

Antibody Testing – This test, when fully developed and approved by the FDA, will allow a person to be tested to determine if they have the antibodies in their blood from the COVID-19 virus. A person who has contracted the virus will test positive even if they never developed any symptoms. People who test positive can return to work, as they are now immune to this infection. Test criteria are expected in early April.

Vaccine Development – Moderna Therapeutics is in Phase 1 trials of a drug that convinces a host’s body to produce antibodies against the virus. Arcturus Therapeutics has partnered with Duke University to develop a vaccine using a modified RNA virus to code proteins that will protect against the COVID-19 virus. Germany’s BioNTech and Pfizer are working on another RNA to spur the production of protective antibodies. GlaxoSmithKline is working on a coronavirus vaccine that involves injecting proteins that spur an immune response.

3. Good News for the Economic Recovery

The Federal Open Market Committee (FOMC) cut short-term interest rates three times in 2019. The effects were just beginning to be felt in the economy, but then the virus hit.

The FOMC cut short-term interest rates by 50 basis points (0.50%) at an unscheduled meeting on March 3 and cut them again by 100 basis points (1%) at another unscheduled meeting on March 15. The Federal Funds rate is now in the range of 0% to 0.25% – the same place it was during the 2008-09 Great Recession.

The Federal Reserve has also unleashed a series of lending facilities designed to provide much-needed liquidity in various markets. This includes the commercial paper market, money market mutual funds, and the asset-backed securities loan market.

The Fed also announced a new quantitative easing program that will purchase assets “in the amounts needed” to support smooth market functioning. The Fed’s balance sheet increased by $942 billion to $5.25 trillion in the initial two weeks of purchases.

Federal and most state tax filing for 2019 has been delayed until July 15. 2020 first quarterly tax payments are also delayed until July 15.

Phase I of fiscal stimulus was originally pegged by the President at $2.5 billion but Congress bumped it up to $8.3 billion. The bill was signed on March 6. It provides for extra funding for the Centers for Disease Control, the Food & Drug Commission, the National Institute of Health, the State Department, and the Small Business Administration.

Phase II of fiscal stimulus was passed on March 18 and includes free virus testing for the uninsured, 2 weeks paid sick leave to hourly employees, expanded unemployment insurance benefits, and increased funding for Medicare and food programs like SNAP.

Phase III of fiscal stimulus was passed at the end of March. It includes:

         – $300 billion in cash payments to lower-income taxpayers

         – An additional $600 per week of unemployment benefits

         – $100 billion for hospitals

         – 20% increase in Medicare payments for COVID-19 patients

         – $300 billion for small businesses

         – $500 billion for corporations

         – $150 billion for state and local governments

         – $46 billion for the airline industry

Initial discussions on a fourth fiscal stimulus bill might be for infrastructure.

The purpose of all these actions is to provide the economy with the underpinnings required to function until the time comes when the nation has the visibility to see the other side of the pandemic. When we reach the shores of stability, we would not be surprised to see an elevated level of economic growth due to pent-up demand.

Recommended Action for Your Stock Portfolio

It’s too late to sell stocks. Investor options are as follows:

1. For those with cash destined for the stock market, buying can begin, but do not throw all your money into the market right now. Spread it out. If we determine a buy signal has developed, we will announce it with all due speed.

2. For those who have not sold anything, congratulations! Just hold on. Do not sell low. This market will recover, even if it takes a year or more. Even in the Great Depression, the stock market did not go to zero.

A Final Note

Jim Mattis, former Secretary of Defense, said recently, “If, in this dramatic coronavirus age, we don’t recognize what our revolutionary founding fathers saw so clearly – We either hang together or we will hang separately!” Mattis and the original author, Ben Franklin, are saying that we must remain united in our resolve (to defeat the virus), or our robust economy and country will fail miserably.

Take care of yourself and your loved ones. We’re in this together.

-Mark Lorenz, Lorenz Financial