Write-Offs.

What depression?

US equities logged their first consecutive weekly gains since the onset of the pandemic panic after a rousing Friday session that found small-caps surging more than 4%.

It was the third-best session for small-caps versus big-cap tech in years, and helped take some of the air out of what was rapidly become an overextended trade. There’s more on that here, but suffice to say there’s a strong argument to be made that big-cap tech has managed to enter “bubble” territory, at least on a relative basis.

These last two weeks will be remembered for the extent to which the broad market rose 15% in nine sessions (last week was holiday-shortened) despite some of the worst data in the history of modern economic statistics.

This makes for a highly amusing visual juxtaposition. As of Friday, the S&P is on track for its best month since 1987. Meanwhile, the Philly Fed printed the worst since 1980 for April, while Empire manufacturing doubled the low print from the GFC, on the way to lowest reading on record.

We’re supposed to “look through” the data. As Jim Bullard put it on Friday, the second quarter for the US economy is a “write-off”.

“The main impact will come in the the current quarter”, Bullard said. “We should just write off the second quarter”.

At least for right now, investors are willing to accept that storyline. Their mettle will be tested, that’s for sure. In addition to the laughably bad regional Fed gauges, this week brought a harrowing plunge in retail sales, the worst industrial output print since the end of World War II and you’re reminded that the already stark visual in the top pane below is going to get much, much worse.

The country’s unemployment crisis gets more ghastly by the week. When taken in conjunction with the previous three weeks, the latest jobless claims print effectively means the US economy wiped away a decade of job creation in the space of a month.

The numbers are truly disconcerting, and one certainly hopes those fortunate enough to be insulated from the economic impact of the crisis understand that these aren’t merely “numbers” – these are people.

And then there’s what we learned from big bank earnings. Trading results were great, pretty much across the board. Citi, JPMorgan, Goldman, Bank of America and Morgan Stanley all posted at least a 20% YoY gain in trading revenue, and in some cases much more.

But, as detailed extensively in “Volatility Saved Wall Street In The First Quarter. Now Comes The Hard Part“, it’s by no means clear that Wall Street can count on volatility (and an associated surge in client activity) riding to the rescue as the credit losses banks spent last quarter provisioning for become reality.

A simple visualization shows you just how bad banks think the storm is likely to be:

And yet, even as the concern mounts, the Fed backstop and the notion that the US economy is on the road to some manner of tentative, partial reopening, has triggered a massive rally in credit.

In fact, over the last two weeks, high yield spreads have come in the most in a decade, all the way inside 730 bps from wides well into distressed territory above 1,000 last month.

All’s well that ends in everyone being made “whole” either by Congress or by the Fed, I suppose.

Most of us recognize the utility in adopting the virus containment measures put in place over the past month. But we also acknowledge there’s considerable risk in this “induced coma”. As Marko Kolanovic put it on Thursday, “if this lasts too long, or the amount of ‘oxygen’ is insufficient, some parts of the economy will suffer irreparable damage”.

When it comes to equities, Bloomberg’s ETF expert Eric Balchunas on Friday afternoon declared the “beast tamed”. “SPY volume was in the mild $30 billion range all week, 15 straight days below the dreaded $60 billion mark, since the Fed pacified markets”, he said.