Markets were erratic this week as investors scrambled to assess the impact of the coronavirus and new accommodative monetary policy. The S&P 500 moved an average of 3.3% per day, finishing up 0.6% for the week. A 5% drop on the final two days eroded confidence heading into the weekend. Treasury yields plummeted on a surprise 50 basis point rate cut by the Fed and a rush to save havens. Oil fell after an attempt at a production cut by OPEC and Russia collapsed. Utilities gained as interest rates fell.
S&P 500: 2,972 (+0.6%)
FTSE All-World ex-US (VEU): (-1.1%)
U.S. 10 Year Treasury Yield: 0.76% (-0.41)
Gold: $1,674 (+6.0%)
EUR/USD: $1.128 (+2.3%)
- Monday – Manufacturing indexes in China plunged in the steepest contraction in history.
- Tuesday – The Federal Reserve cut interest rates 0.5% in an effort to blunt impact from coronavirus. The 10 year Treasury rate dropped below 1% for the first time.
- Tuesday – Joe Biden posted impressive Super Tuesday results, regaining front-runner status.
- Wednesday – The U.S. added 183,000 non-farm jobs in February, beating expectations.
- Thursday – Thirty year mortgages fell to their lowest rate on record.
- Friday – Oil prices fell the most since 2008 as Russia and OPEC failed to agree on production cuts.
- Friday – Apple, Google, Microsoft and other technology companies encouraged employees to work from home. The South by Southwest festival was cancelled.
U.S. stocks finished modestly higher in a wild week of trading as the coronavirus began to spread more broadly in the states, prompting some school closures and other restrictions on travel and public gatherings.
While the media has proven adept at highlighting the scary spread of the virus, there were also some points of encouragement. First, new cases in China continue to drop. The global count of active cases resumed a modest uptick as rates increased outside of China, but containment measures also continue to show effectiveness. Additionally, the spread in the most heavily impacted areas of South Korea seemed to moderate, though the situation there is rapidly evolving.
A surprise Fed cut and a rush to safety drove U.S. bond yields down sharply. The 10-year Treasury is now at 0.76% and the 30-year at 1.29%, both all-time lows. For those with a longer-term view, the dividend yield on stocks is now significantly higher than long duration bonds.
U.S. jobs data from February was strong, but this provided little comfort as coronavirus impact will only be felt on a forward-looking basis. In times of euphoria or panic, stocks tend to overshoot in both directions, which is why a stable approach with periodic rebalancing helps. There is no way to know where or when this sell-off will find a bottom. In our view, long term investors with a thoughtful strategy are well prepared and don’t need to overthink the situation. The current environment is, however, a good opportunity to revisit views on risk tolerance to see if the long bull market caused bias.