Weekly Market Update — March 23, 2020
Weekly Market Performance
|10-Year Treasury Yield||0.88%||-0.1%||-1.1%|
*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
U.S. Equity Market Suffer Big Losses
The losses for U.S. stocks were big, as worries about the coronavirus and its global economic impact seemed to increase every day. All of the gains of the past 4 years were wiped out as the DJIA reached levels not seen since the presidential election of 2016 and the S&P 500 touched levels not seen since the beginning of 2017.
The Federal Reserve hoped to prop up markets by announcing on Sunday night that it would cut the Federal Funds Rate and begin a quantitative easing program by purchasing Treasuries.
But when the bell tolled to end trading on Monday, the DJIA had suffered its biggest percentage loss since 1987 and NASDAQ experienced its biggest daily decline in history. The Fear Index, formally named the CBOE Volatility Index, then hit its highest level on record, jumping past the record last seen since the financial crisis of 2008.
On Monday and Wednesday the New York Stock Exchange’s “circuit breakers” halted trading and then Wednesday, the NYSE announced it would move temporarily to automated trading beginning next week.
The Fed Acts Quickly on a Sunday
In a dramatic and emergency action, the Federal Reserve announced it would cut its target interest rate to near zero. And it announced it on a Sunday.
While the Fed was scheduled to meet on Wednesday and the markets expected this rate cut to happen then, it was surprising that the Fed decided they couldn’t wait even 3 more days.
The unexpected and faster–than–expected rate cut is on the heels of the Fed’s emergency 50 basis points rate cut on March 3rd – and that cut was the first time since October 2008 that our central bank decided to go ahead with a cut in between scheduled policy meetings.
In addition to cutting rates, the Fed announced it would purchase $700 billion worth of Treasury bonds and mortgage–backed securities. Further, the Fed brokered a deal with other global central banks to lower their rates on currency swaps to bring normalcy to markets. The other central banks include the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.
All Sectors Retreat
The Energy sector continues to be among the market’s worst performers, dropping another 20% on the week, driven by another huge 24% drop in the price of oil.
Reviewing the performance of the 11 S&P 500 sectors did not offer investors many, if any, silver linings, as every single sector is red for the Year–to–Date as well as the 1–year period ending Friday. For the 3–year period ending Friday, the Information Technology sector is up (38.40%) as are the Health Care (+5.36%) and Consumer Discretionary (+2.23%) sectors. Over the 5–year period ending Friday, half of the sectors are green and half are red.
The performance of the Energy sector, however, is tough to fathom. As of Friday, over every time period – 1–week, 1–month, 3–month, YTD, 1–year, 3–years, 5–years and 10–years – the Energy sector is red – very red. For the 10–year period ending Friday (and that means going back to March 2010), the Energy sector is down 54.85%.
Markets Outside the U.S. Fall, But not As Much
Markets around the globe posted losses, but the losses were not as steep as what was seen in the United States. The large–cap developed markets MSCI EAFE Index, for example, dropped about 6.6% on the week and YTD is in line with the decline in the Dow Jones Industrial Average.
But on the week, markets overseas saw:
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