Weekly Market Commentary March 2nd to March 6th 2020
March came in like a lion as the adage goes, in this case referring to equity market volatility rather than the weather. Stock market levels spiked and retreated with major swings throughout the week. After the final trading session, the S&P 500 Index managed a modest 0.6% gain for the week closing at 2,972. The Nasdaq composite took a similarly volatile path to close only 0.1% higher at 8,575.
The Federal Reserve gave markets a surprise 50bp cut in the Fed Funds Rate on Tuesday, the first such inter-meeting cut since 2008. While the market had priced in the move, the timing with only two weeks to go before the next official Fed meeting was unexpected. The Fed Funds target rate now stands at 1.00-1.25%. The Bank of Canada followed suit with a rate cut of its own. Interest rates around the globe continued a dramatic slide through the week. Remarkably, the 2-Year U.S. Treasury yield more than halved from the previous week closing at 0.52%. The 10-Year UST yield continued to break through new record lows at 0.78%. The 30-Year UST at 1.31% stands lower than the 2-Year yield only two weeks ago. In a word, “astounding”. Investors seeking the safety of U.S. Treasuries have bid up prices and driven rates lower than anyone anticipated. Mortgage refinancing volume is shooting through the roof.
273k new jobs were added in the U.S. in February and another 85k in upward revisions for the previous two months, well ahead of expectations. Headline unemployment in the U.S. now stands at 3.5%, while year-on-year wage growth stands at 3.0%. The very strong February labor market data, however, has been overshadowed by fears of the impact the Covid-19 virus may have on the next monthly report.
ISM Manufacturing edged lower in February, an additional data point indicating that growth in factory activity is slowing. The forward-looking New Orders component slipped modestly into contraction territory (below 50) to 49.8. Services measured by the ISM Non-manufacturing Index strengthened in February ahead of forecasts, although virus impacts are likely to weigh on the March release.
The schedule of key economic releases next week is light, including CPI and PPI inflation and import/export prices. Investors will continue to be focused on headlines relating to Covid-19 epidemic responses around the world.