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THE CORONAVIRUS BEAR RUTHLESSLY STALKS WALL STREET AND MAIN STREET

Weekly Market Update — March 23, 2020

DROP

  • Wall Street suffered a wild week during which the major U.S. equity indices suffered losses not seen since 2008
  • The DJIA fell more than 17%, followed by the 15% retreat in the S&P 500 and the more than 12% decline in NASDAQ
  • The smaller–cap Russell 2000 Index dropped more than 16%, which is its second weekly decline of more than 16%
  • Unsurprisingly, every sector in the S&P 500 lost at least 10%, with the Real Estate sector dropping 23% and Energy dropping 20%
  • For the YTD and 1–year period ending Friday, every S&P 500 sector is negative and only 3 sectors are positive for the 3–year period ending Friday
  • State governors started ordering stay–at–home restrictions and the impact on big companies and mom-and-pop operations were felt everywhere, as businesses, churches and schools all closed
  • Weekly jobless claims increased by 70,000, although that number is expected to increase sharply over the coming months
  • The Federal Reserve slashed the Fed Funds Rate and announced a $700 billion quantitative easing program, as it worked with other global central banks to prop up global economies
  • Congress passed another $8.3 billion in relief that will provide more unemployment benefits, sick leave payments as well as suspend foreclosures and evictions for 60 days
  • The U.S. Department of the Treasury announced that it is delaying the April 15th deadline to file and pay taxes by 90 days, giving individuals and businesses another 3 months to file and then pay the government what they owe
  • Oil prices were wildly volatile, dropping almost 25% one day and then jumping almost the same amount the next day. When the week ended, WTI crude was off by about 25% and ended the week just shy of $24/barrel
  • The U.S. Dollar Index jumped 4.1% and gold futures declined 2.1%
  • The 2–year Treasury yield declined to 0.37% and the 10–year yield dropped to 0.88%

Weekly Market Performance

Close Week YTD
DJIA 19,174 -17.3% -32.8%
S&P 500 2,305 -15.0% -28.7%
NASDAQ 6,880 -12.6% -23.3%
Russell 2000 1,014 -16.1% -39.2%
MSCI EAFE 1,382 -6.6% -32.2%
*Bond Index 2,225.32 -3.14% 0.01%
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.

BEAR

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.

The FED

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.

CRASH

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:

  • The pan-European STOXX Europe 600 Index declined 1.85%
  • Germany’s Xetra DAX Index dropped 3.56%
  • France’s CAC–40 Index declined 2.51%
  • Italy’s FTSE MIB Index dropped 0.4%
  • The UK’s FTSE 100 Index declined 2.78%
  • The Nikkei 225 Stock Average dropped 5%
  • Japan’s large–cap TOPIX Index and its small–cap TOPIX Small Index were up on the week
  • China’s Shanghai Composite Index declined 5%

Sources

dol.gov;federalreserve.gov;standardandpoors.com;nyse.com;msci.com;nasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

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