Todd’s Take on the Market
The markets had a volatile week as they struggled to digest the news on the coronavirus, central bank action and the U.S. Democratic Party presidential primaries. However, the Dow finished higher by 1.79%, the S&P 500 0.65% and the NASDAQ 0.12%. This came as the markets alternated between 1000 points down and then up 1000 points—insane price action. There wasn’t enough Dramamine to go around. Internationally, the spread of the coronavirus ultimately weighed on stocks except for China—go figure.
For commodities, oil prices continued to slide last week as OPEC and its allies could not agree on steeper oil production cuts. With the virus dampening activity and weighing on demand, West Texas Intermediate Crude (WTI) fell 7.78% and Brent Sea crude was down 10.39%.
For fixed income, yields across the globe plummeted following fear stoked by accommodative monetary policies of major central banks amid coronavirus uncertainty. The FED and the Bank of Canada announced emergency rate cuts of 50 basis points, sending yields into unchartered territory (down). The U.S. 10-year yield fell below 0.70% in trading late in the week, despite a really strong jobs report. Meanwhile, get this, the German 10-year bond fell to -0.746%. That means if you buy a brand new 10-year German bond and hold it to maturity, you will get back less than you put in! “Where do we sign up for some of that action?”, said no one ever.
On the economic front, as mentioned, we had a strong jobs report with the economy adding 273,000 jobs and the unemployment rate ticking down to 3.5% and average hourly earnings rose—that’s good for the working class. Even in Europe, the European Union comprised of 27 countries, saw their unemployment rate fall to 6.6%, its lowest on record.
So, we started this week with the Dow down 8.95%, the S&P 500 down 7.67% and the NASDAQ down 4.25% Year-to-date.
Over the weekend, we hear coronavirus cases soared, some schools are closing across the country and many business meetings have been pushed out. Oh, and if that wasn’t enough, Saudi Arabia decided now was a good time to have a price war with Russia with regards to oil. That’s right, the OPEC meeting ended last week and Russia basically said they weren’t cutting any production, so the Saudis decided to see how low they could take the price of oil.
This morning, Monday, March 9, 2020, stocks did something they haven’t done since President Trump won the election in 2016, we had circuit breakers kick in and to the downside. Circuit breakers kick in when the averages fall 7%—they close for 15 minutes. After that, if they fall by 13%, they close for another 15 minutes. If that doesn’t work and they fall by 20%, the markets are closed for the remainder of the day—we hit the first circuit breaker with all of the major averages opening down by more than 7%. Who needs to go to Six Flags with markets like this?!
But don’t panic, we have taken steps to help protect your accounts from downward market volatility. Keep in mind the situation is fluid and sensationalism abound, which we will not dismiss, but we have proactively been taking measures to help reduce some, yet not all downward pressure.
Over the near-term, we will continue to see negative headlines regarding the virus (number infected, number dead, new cases in new states & countries, school closings, conference cancellations, etc.); yet we will not be watching the news, but the market’s reaction to the news—so stay tuned and we will keep you posted.
Please reach out to us if you have specific comments, questions or concerns about how this impacts your own individual situation.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
