Market Share Newsletter Vol 2 Issue 6

The Economy

• Countries around the world have continued to shut down their borders either entirely or have implemented restrictions. International travel has nearly come to a grinding halt amidst the rapidly growing concern over the Coronavirus. Through March 16, there have been 182,400 confirmed cases and 7,100 deaths around the world from the virus.
• The initial talks of a U.S. recession due to the Coronavirus; at one point, seemed possible but has now become inevitable. Economists, pundits, and professionals (including us) are now focusing on the depth and duration of the recession as uncertainties surrounding the virus surmount.
• Recent economic data in the United States has started to show signs of the economy slowing and, hopefully only temporarily, shutting down. The Empire Manufacturing Index (a manufacturing index in New York) fell by a record amount in February and declined to its lowest level since March 2009.
• Retail sales in February were expected to increase by 0.2% but declined by 0.5%. It did not come as a surprise, but the biggest detractor came from gasoline stations as their sales were down 2.8%.
• China released its first round of economic data since the Coronavirus has had its full effect on their economy. Retail sales declined year-over-year by 20.5% in January and February and industrial output declined by 13.5%. The decline in industrial production was the largest on record and the unemployment rate increased to 6.3% in February from 5.2% in December.

Equities

• The decline in the overall U.S. equity market has escalated in March as the S&P 500 was down over 19% through March 16. The developed international markets were down more than 21% as the growth and severity of the Coronavirus has escalated.
• Consumer staples, health care, and technology have been the three best performing sectors year-to-date, while energy and financials have performed the worst. The energy sector, which is now only 2.7% of the S&P 500, has fallen 54% through March 16. The utilities and real estate sectors are now larger weightings within the S&P 500.
• Small-cap stocks in the U.S., as measured by the Russell 2000, are now down almost 38% year-to-date. There has been an influx of very recent research stating that this could be a buying opportunity within small-cap stocks.

Source: Bloomberg

Fixed Income

• Since our last regular Market Share newsletter email on March 3, the Federal Reserve has made drastic moves by cutting their Target Rate by 150 basis points to a range of 0.00%-0.25%. On top of the 1.50 percentage point cut, they will also add an additional $700 billion of quantitative easing to the financial system by buying $500 billion of U.S. Treasuries and $200 billion of Agency Mortgage-Backed Securities.
• The Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank cohesively announced action to provide liquidity to the markets. This was an unprecedented move as central banks around the world coordinated drastic monetary policy changes.
• As the ten-year U.S. Treasury has plummeted to 0.80% (approximately 110 basis point decline since the beginning of the year), the spread between investment grade bonds and its comparable Treasury increased to its widest level since early 2016, as measured by Bloomberg Barclays indices. The spread is the difference in yield an investor receives relative to a U.S. Treasury with a comparable maturity.

Source: Bloomberg