Stocks suffered their worst week since 2008 as pandemic fears continued to punish risk assets and investors are suddenly forced to do their best epidemiologist impressions. However, there remains so much uncertainty around coronavirus that even most healthcare professionals are unsure as to exactly how this will play out and these unknowns have led traders to overwhelmingly err to the side of caution through selling stocks. As a result, only four S&P 500 stocks entering this morning were green for the week: Regeneron, Gilead, Clorox and CME Group. On the flip side, bonds have strengthened in price as investors have piled into their relative safety and pushed the yields on the 10-year and 30-year US Treasuries to their lowest levels in history, ~1.12% and ~1.64% respectively. The fear index, or the VIX, has now risen from 14 just a week ago to as high as 49 today, its highest levels since the financial crisis and surpassing levels reached during the market selloffs in 2011, 2015, and 2018. Furthermore, the S&P 500 is now at its most oversold levels since Black Monday in August 2011. Simply put, this sell off is historic on many levels.
Heading into next week, coronavirus headlines will continue to dominate the market narrative and while more downside could be possible, we do not believe a change in strategy is warranted. Despite historically low yields, this week’s turmoil emphatically illustrated the merits of owning bonds to reduce overall portfolio risk and hedge against black swan events. In addition, underneath today’s chaotic trading we did see some signs for cautious optimism as the S&P 500 closed near its highs of the day and the Nasdaq actually finished slightly in the green. On a more granular level, some of the stocks that led the week’s losses, such as cruise liners, semiconductor companies, or travel booking sites, closed Friday markedly higher. At the same time, some of the few areas that investors piled into for safety such as gold, Clorox (bleach and disinfectant wipes), and Gilead (coronavirus vaccine) finished today 3%-5% lower. Such reversal in leadership while admittedly still in its infancy is exactly what needs to happen for a bottom to form. More importantly, around 3 PM today, Federal Reserve Chair Jay Powell released a short statement indicating that the Fed will “use its tools and act as appropriate to support the economy”. As a result, investors are hopeful that the Fed has their back and are now pricing in a 100% probability of at least one 25-basis point interest rate cut on March 18. We will be closely watching coronavirus headlines over the weekend and will continue to update clients throughout next week.
Coming up next week:
- Markit PMI Manufacturing Index
- Construction Spending
- ISM Manufacturing Index
- ADP Employment Survey
- Markit PMI Services Index
- ISM Non-Manufacturing Index
- Productivity and Costs
- Employment Report
- Consumer Credit
Have a great weekend!
Ian Browning | Director, Investment Strategies & Shareholder
Peter E. Simmons | President & CEO