Weekly Market Commentary March 16th to March 20th 2020
Steep declines in the stock market resumed immediately in the first trading session of the week. The Federal Government attempted to calm markets as multiple economic stimulus packages were rolled out, but continued news of the spread of the COVID-19 Coronavirus remained the driving news. Despite a record-setting day of positive stock returns on Tuesday, U.S. stock indices finished the week again in bear market territory and wiped out all gains since the December 2018 correction. The Dow Jones Industrial Average (DJIA) closed at 19,174, down -17.3% on the week. The broader S&P500 Index finished at 2,305, down -15.0%. The tech-heavy NASDAQ ended at 6,880, off by -12.6%.
In the bond market, 10-Year US Treasuries rallied on Friday to finish the week basically flat with a yield of 0.85%. The 2-Year Treasuries, however, did not perform similarly, causing the overall yield curve to steepen with the yield dropping -16 basis points to 0.34%.
As for commodities, crude oil was down 25% on the week as the Russians and Saudis continued to flood the markets with cheap oil in an effort to disrupt world competition. Gold, generally a safe haven investment in times of financial turmoil and one you would expect to rise under these conditions, dropped -1.7% on the week and is basically flat for the year.
As mentioned earlier, the Federal Government has been hard at work combating what President Trump has called the “invisible enemy”. On Sunday, the Federal Reserve decided not to wait two more days for their regularly scheduled March meeting, and slashed interest rates to near zero. In other quantitative easing efforts, they also announced a $700 billion bond buying program designed to prop up liquidity in the markets. Arrangements were also made with other central banks to make $50 billion in US dollar funding available.
The Trump Administration unlocked disaster funding by declaring a national emergency saying it would “unleash the full power of the federal government.” The US Congress is working on legislation designed to help the country both medically and financially. They passed a bill to cover testing and healthcare costs for underinsured citizens, extended paid leave benefits, and are working on a plan to provide direct payments to Americans under certain income thresholds. They are committed to helping businesses by offering low-cost loans to distressed industries and forgivable loans to small businesses.
From an economic standpoint, weekly data generally followed the markets. On Monday, the Empire State regional manufacturing index plummeted from +12.9 to -21.5 and Thursday brought similar pain in the Philly Fed manufacturing index. Tuesday brought more distress as retail sales dropped -0.5% when pessimistic forecasts called for a +0.1%. Also released Thursday was weekly jobless claims which increased to 281,000 despite a 220,000 forecast. Look for this weekly figure to do nothing but balloon over the next few weeks as companies continue to feel the pain of national business shutdowns. The only positive numbers for the week came from the housing market and can be attributed to timing as these are stats for February.
Next week, look for the virus to continue to potentially cause upheaval in the markets as scientists, the government, and the medical community continue to battle the fallout from COVID-19. Economic data to be released includes Markit Manufacturing and Services PMIs, Durable and Capital Goods, Weekly Jobless Claims, Revised Q4 GDP, and Personal Income and Spending.
Stay home and stay healthy!