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FED STEPS IN AMIDST CONTINUING CORONAVIRUS WORRIES

  • DROPThe markets saw another volatile week and bounced around with seemingly little conviction as to which way they were headed
  • When the final bell tolled on Friday, the 30–stock DJIA was up 1.8%, the broad, but still, large-cap S&P 500 gained 0.6% and the tech-laden NASDAQ inched forward to a 0.1% gain
  • The smaller–cap Russell 2000, on the other hand, turned in a negative week, shedding 1.8% on the week
  • As was the case last week, coronavirus-related worries dominated the news, as concerns about slowing global GDP growth intensified
  • The Federal Reserve briefly stole the spotlight, as they announced an unexpected 50 basis point rate cut in short–term interest rates
  • The Fed’s actions on stocks were mixed as the week wore on, but likely exacerbated the flight to safety and to U.S. Treasuries, as the 10–year Treasury note dropped below 1.00% for the first time in history and came to rest at 0.76%, fueling worries of negative interest rates
  • Within the 11 S&P 500 sectors, there was a huge range in performance during the week. The countercyclical sectors like Utilities and Consumer Staples jumped 7.9% and 6.2%, respectively, while the cyclical sectors like Energy and Financials were painted very red, returning -7.3% and -4.1%, respectively
  • The Energy sector was hit hard once again as the price of crude oil fell to $41/barrel, its lowest level in about 4 years

 

 

Weekly Market Performance

Close Week YTD
DJIA 25,866 1.8% -9.4%
S&P 500 2,972 0.6% -8.0%
NASDAQ 8,576 0.1% -4.4%
Russell 2000 1,449.22 -1.8% -13.1%
MSCI EAFE 1,857 2.6% -8.8%
*Bond Index 2,328.00 0.84% 4.63%
10-Year Treasury Yield 0.76% -0.4% -1.2%

*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.

Coronavirus Dominates the News Again

It was a mixed week for the major U.S. stock indices, marked by significant volatility as fears of the coronavirus gripped investors worldwide. The two well–known large–cap indices were positive, as the DJIA and S&P 500 moved up 1.8% and 0.6% on the week. The tech-heavy NASDAQ squeezed out a small 0.1% gain whereas the smaller–cap Russell 2000 Index gave back almost 2%.

TESTING

Within the 11 S&P 500 sectors, the range in performance on the week was huge. The countercyclical and defensive-oriented sectors like Utilities and Consumer Staples jumped 7.9% and 6.2%, respectively, while the cyclical Energy sector was hammered, losing 7.3% as the price of crude oil fell to $41/barrel, its lowest level in about 4 years.

Interestingly, Health Care moved up 5% on the week, with some suggesting that Bernie Sanders’s notion of “Medicare for All” took a hit due to former Vice President Joe Biden’s strong showing on Super Tuesday.

Fed Rate Cuts Catches Wall Street by Surprise

On Tuesday, the Federal Reserve cut interest rates by 50 basis points in an unscheduled Fed Meeting because of the coronavirus. The Fed did not have a regularly scheduled meeting for another two weeks, but felt the need to act immediately to help boost the economy and markets. This marks the first time since October 2008 that our central bank decided to go ahead with a cut in between scheduled policy meetings.

RATE CUTS

The rate cut, which is a half percentage point, lowered the current target range to between 1% and 1.25% and the decision was unanimous among the Federal Open Market Committee members.

In a prepared statement, Federal Reserve Chairman Jerome Powell said that the Fed considered the spread of the coronavirus to be a “material change” to the Fed’s economic outlook, thus justifying the rate cut.

Treasury Yields Hit Record Lows

Throughout the week, investors raced to the exits and the perceived safety of safer assets, especially U.S. Treasuries.

The yield on the benchmark 10-year Treasury note retreated further after the Fed’s emergency rate cut, falling below 1% for the first time in history on Tuesday, then reaching a new crazily record low of 0.66% on Friday morning, before settling at 0.76%.

Positive on the Week

  • Jobless claims stayed about the same from the previous week, but the February Jobs Report surprised on the upside as employers added 273,000 jobs last month and the previous month’s gains were revised further upwards by 85,000 jobs
  • The Institute for Supply Management’s gauge of service sector came in strongly in positive territory

Global Markets Down, Except China

  • The pan-European STOXX Europe 600 Index was down 2.21%
  • Germany’s Xetra DAX Index was down 2.77%
  • France’s CAC-40 Index was down 3.18%
  • Italy’s FTSE MIB Index was down 5.25%
  • The UK’s FTSE 100 Index was down 1.75%
  • The Nikkei 225 Stock Average was down 1.86%
  • The TOPIX Index was down 2.6%
  • The TOPIX Small Index was down 3.0%
  • The Bovespa Index was down 6.0%

But in China, the Shanghai Composite A-share Index was up 5.4% and the CSI 300 large-cap Index gained 5.0%.

 

Sources

instituteforsupplymanagement.orgdol.govcensus.govfederalreserve.govbea.govbls.govcensus.govstandardandpoors.comfactset.comnyse.commsci.comnasdaq.comdowjones.commorningstar.comedwardjones.combloomberg.com

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