Overview: The coronavirus continued to be the source of nearly all market movement this week. The most notable difference was that daily volatility was lower over the last several days, which is an encouraging sign that bond markets may gradually be returning to more normal conditions. Mortgage rates ended the week with little change.

Up to this point, the economic data generally has not reflected the slowdown in activity resulting from the pandemic. For example, the Institute for Supply Management (ISM) Manufacturing Index, the earliest major release each month, showed a much smaller than expected decline. In March, the index dropped from 50.1 to 49.1, which was far above the consensus forecast of 45.0. Readings above 50 signal an expansion in the sector, while those below 50 indicate a contraction. Investors expect that a much lower reading will be seen next month.

By contrast, the one significant economic report released on a weekly basis provided a sobering indication of what likely lies ahead. On Thursday, initial unemployment insurance claims surged to a record 3.3 million, which was more than double the consensus forecast. During 2019 and early 2020, new claims for unemployment insurance typically ranged between 200,000 to 250,000 each week.

Week Ahead

Looking ahead, the coronavirus will remain the focus for the economy. Investors will be watching for news about additional Federal Reserve actions or government fiscal stimulus programs. The major economic data is expected to reflect the negative impact of the pandemic to a greater degree. Of note, the monthly Employment Report, which is scheduled to be released on Friday, and the report on new unemployment claims, which is released every Thursday, will provide investors with valuable information about the condition of the labor market.

ISM Manufacturing Index