February Market Recap
March 2, 2020
The stock market can no longer boast a clean bill of health.
As reported cases of Coronavirus spread beyond Chinese borders, so too did concerns about its ability to bring the global economy to a screeching halt.
Those concerns snowballed into panic in the final week of February. The S&P 500 established a new all-time high on February 19. Less than six full trading days later, the S&P had fallen 10%, the fastest correction in history.
When financial markets closed on February 28, the S&P sat roughly 13% below its Feb. 19 high. The Dow Jones Industrial Average sank 14% from its February high through month’s end, giving up more than 4,000 points in the process. That included a 1,191-point plunge (-4.4%) on February 27.
The sudden and sobering reality: This was the worst single week for US equities since October 2008.
All 11 sectors in the S&P fell sharply last month, with the “best-performing” categories still booking losses greater than 6%. Communication Services (-6.3%) and Real Estate (-6.3%) held up better than most. Financials (-11.2%) and Energy (-14.6%) were hit hardest.
|Index||February 2020||YTD 2020|
The World Health Organization has yet to classify the Coronavirus (COVID-19) outbreak as a “pandemic,” but that distinction matters little to investors, or to American families for that matter. Although the number of reported infections and deaths in the US has yet to accelerate, it’s the uncertainty that fueled such a serious selloff.
At this point, any guess at the true economic impact remains speculative.
Among the questions without quantifiable answers:
- How many US businesses will close at least temporarily?
- How long might those operations be shuttered?
- How significant will the drop in consumer spending (and traveling) be?
- How big will the impact be on US corporate earnings?
While the speed of this latest correction in stock prices is indeed exceptional, a reminder that 10% pullbacks are not at all unusual. Last week’s was the 7th correction of at least 10% since March 2009, and each one proved to be a buying opportunity.
Our view is that a meaningful adjustment in equity prices appears justified, especially considering valuations for the S&P 500 had risen to their highest level in a decade. Let’s not confuse a correction, however, with the end of this 11-year bullish trend in US equities. The threats from Coronavirus no doubt increase the possibility of a US recession, but by no means is that the inevitable outcome.
One factor that will (again) influence how markets behave going forward is Federal Reserve policy. Until late February, it was widely assumed the Fed would stand pat with interest rates in the first half of 2020, but it now appears realistic the Fed could drop rates further as early as March.
Indeed, the hope for a near-term Fed cut helped the Dow rally nearly 1,300 points on the first trading day of March, its largest single-day point gain ever. While the Fed is supposed to be agnostic to short-term market movements, its members will likely be sensitive to “disappointing” markets in this especially volatile environment.
With or without a policy change, interest rates have slipped to their lowest levels in history. Ten-year US Treasury yields fell below 1.3% in February for the first time ever and finished the month yielding 1.13% (compared to 1.92% only two months ago). That is also well below the previous all-times low of 1.34% set in July 2016. Two-year US government bonds yield only 0.90%.
International equities held up better last month than some might have expected. Emerging Market equities, of which China is by far the largest regional weighting, lost 3.8% in February. Non-US Developed Equities dropped 7.8%. The Chinese city of Wuhan, of course, is ground zero for the Coronavirus so it’s encouraging that China’s stock market proved somewhat more resilient as the country continues its efforts to contain the outbreak.
Oil prices continued to sink precipitously last month. West Texas Intermediate Crude finished February at $44.76 per barrel as the economic slowdown in China and other emerging markets has flattened near-term demand. Oil has now fallen roughly 30% from its early January highs.
Marks Group Wealth Management performs in-house analysis on companies. Statistical information on mentioned companies is obtained from company reports, news releases and SEC filings. The information set forth herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of the securities, companies or industries involved. Opinions expressed herein are subject to change without notice. Additional information is available upon request.
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