Volatile Trading Continues as Coronavirus Concerns Spread
Market Recap Week ending 3/6/2020
March certainly came in like a lion for the global financial markets. Volatile trade continued as concerns regarding the spread of the coronavirus and its effect on the global economies dominated the headlines. Growth concerns prompted central banks to cut rates and inject liquidity into the system. Economic data reported during the week, including a robust employment situation report, were diminished as investors recognized the data has not yet incorporated the effects of COVID-19. Energy, financials, and travel-related stocks were especially hard hit during the week. US equity markets were mixed for the week. The S&P 500 gained 0.6%, the Nasdaq was up 0.1%, the Dow outperformed with a 1.8% increase, and the Russell 2000 lagged with a loss of 1.8%. Safe-haven assets continued to be well bid with US Treasuries posting one of their best weeks, if not the best week ever on record. The 2-year note yield decreased by thirty-nine basis points to close at 0.49%. The 10-year bond yield decreased by forty-two basis points to close at 0.71% and, at one point, traded as low as 0.66%. The 30-year bond yield decreased by forty-five basis points to close at 1.22%. Gold rallied nearly $100 to close at $1673.50 an Oz. On the other hand, Oil fell to $42.15, down $2.65 from last week's close, which marks the lowest level since 2016. Of note, OPEC failed to. We had quite a few changes to the models last week. In our Strategic Series, we sold out of our exposure to Japan and added to our enhanced cash position. In our Flex Series, we reduced our exposure to US equities, High Yield, International Real Estate, and Gold while increasing our position in Mid-duration US Treasuries, Emerging Markets, and cash. Please let us know if you have any questions regarding these changes.
The coronavirus, COVID-19, continued to cause havoc in the markets. Reports from across the globe confirmed its rapid spread. China, South Korea, Iran, and Italy currently are the hardest hit. In the US, Washington State has been the hardest hit, but the spread now includes 23 states. Italy has quarantined a northern region with a population of 11 million. Cruise Ships are being held at bay until passengers have been tested. Conferences have been canceled, and some workers asked to stay home to work. The travel industry has been particularly hard hit. Cruise Line companies, Norwegian, Carnival, and Royal Caribbean along with Airlines, Alaska Air, American Airlines, and Southwest, stocks have been hammered. A run on paper goods and chlorine are evident at Costco, where the retailer is out of stock of paper towels, toilet paper, and bleach. Conflicting reports, misinformation, and the pace of the dissemination of information have added to concerns. The uncertainties inherent with COVID-19 will and has had a meaningful impact on the economy- how long it will continue to impact, and to what extent is still unknown.
In an effort to get in front of the global economic impact from COVID-19, Central Banks have cut their target rates and injected liquidity into the system. In the US, the Federal Reserve announced a 50-basis point cut to its target rate, which now has a range of 1-1.25%. Fed Funds futures currently assign a 100% probability of another 50-basis point cut in the March 17th-18th meeting and a 65% probability of a 75-basis point cut. Similarly, the Reserve Bank of Australia cut its target rate to 50 basis points, which is a record low. In Japan, where rates are currently negative, the Bank of Japan injected over 100 billion Yen into the system to help liquidity and provide some stimulus support. Fiscal spending is also coming. In the US, Congress approved 8.5 billion in emergency spending. Going forward, infrastructure spending measures might be one avenue to help stimulate the economy.
