Coronavirus Panic Leads to Historically Rapid Market Sell-off

Market Recap Week ending 2/28/2020

Global financial markets fell last week as fear of the coronavirus, and its effect on humanity and the global economy pushed investors out of risk assets and into their safe-haven counterparts.  The S&P 500 lost 11.49% during the week, the Dow shed 12.36%, the NASDAQ fell 10.54%, and the Russell 2000 gave back 12.04%.  The loss on the S&P 500 was the fastest 10% loss in history. US Treasuries were well bid and pushed yields to record levels across the curve.  The 2-year note yield decreased by 47 basis points to close at .88% while the 10-year bond yield fell by 47 basis points to close at 1.13%.  The 30-year bond yield decreased 22 basis points to close at 1.67%. Interestingly, Gold fell by 4.7% and closed at $1572.40 an Oz.  Oil fell 16% to close at $44.81 a barrel.  There were no changes to our models this week.

News that the spread of the coronavirus had increased outside of China gave investors reason to sell the markets last week.  News that travel restrictions had been placed on flights to South Korea along with various measures taken by the Japanese government to stem the spread of the virus further promoted the notion that the global supply chain will be seriously disrupted.   Elsewhere, Italy closed museums, canceled fashion week, and suspended their football season.  In Switzerland, the government banned group gatherings of more than 1000 people.  These types of initiatives will most likely continue and provided a reason for Wall Street to cut economic growth estimates and earnings growth estimates.  Goldman Sachs cut earnings growth to zero for 2020. The reduction of growth expectations may provide a reason for the Federal Reserve to cut its target rate.  Fed Fund futures now assign a 96% probability that the Fed will cut by 50 basis points in their March meeting and also assign a 70% probability for another 25-basis point cut in April.