Investment Manager Research | Market Commentary | COVID-19
Equities Retreat on Coronavirus Concerns
March 4, 2020
• The novel coronavirus (Covid-19) is a tragic outbreak with unimaginable and unmeasurable implications on those affected. While we rely on infectious disease specialists to infer potential humanitarian and social reverberations of the disease, we will attempt to assess the exogenous shock Covid-19 may present to macroeconomic and political conditions.
• The VIX Index reached 40.1, a daily level among the highest 97.8 percent of daily observations since the index was introduced in January 1990, and provoked indiscriminate selling of risk-seeking assets.
• Household consumption growth, which represents approximately 70 percent of U.S. GDP, remains stuck in a sideways channel with downside risks from downstream effects of slowing business activity.
• Data through February 29 suggest the Covid-19 outbreak is improving, but South Korea, Italy and Iran bear monitoring for growth or decline in case counts.
The S&P 500 Index rose 5.0 percent during the first 19 days of the month, reached an all-time high of 3,386 points and then fell 12.8 percent on fears the coronavirus outbreak may disrupt global growth more than previously expected. The violent sell-off thrust the CBOE VIX Index (VIX) to 40.1, a daily level among the highest 97.8 percent of daily observations since the VIX was introduced in January 1990, provoking indiscriminate selling of risk-seeking assets. For the month, the index fell 8.2 percent but held up better than the MSCI EAFE and MSCI Emerging Market indices, which fell by 9.0 and 5.3 percent, respectively. Despite the U.S. market correction, defined as a peak-to-trough decline of more than 10 percent, but less than 20 percent, growth stocks continued to outperform value-orientated strategies and large-cap stocks again fared better than small-cap stocks.
Nominal yields moved sharply lower again in February on economic growth concerns and a flight to quality sentiment, which benefited safe-haven fixed income asset classes. While the S&P 500 Index etched a new all-time high, the 10-year U.S. Treasury recorded an all-time low yield of 1.15 percent. The 10-year yield fell 35.5 basis points in February and a staggering 76.9 percent year-to-date.
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Investment Manager Research | COVID-19