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Market Commentary for the week ending February 29th, 2020
- The S&P 500 is off more than -12% from its high just 7 trading days ago while most other assets have held up relatively better
- Selling was widespread with 498 of the 500 stocks in the S&P 500 lower for the week
- Bond prices rally with the yield on the U.S. 10-Year Treasury falling to a record low
Market Performance Summary
Notable Market Headlines
Fears that the coronavirus is spreading more so than originally anticipated resulting in a more server global economic slowdown drove stock prices lower around the world.
U.S. large stocks, as measured by the S&P 500, fell -11.5% for the week and are down -12.8% from their highs just 7 trading days ago. As the accompanying table shows, the Dow Industrials suffered a slightly larger loss while the NASDAQ held up fractionally better.
This market decline has gotten a lot of attention as it very well should but some of the headlines may make it appear worse than it really is. One of those headlines is that this is the biggest one-week point drop for the Dow in history losing -3,583 points. This is true. The next biggest 5-day point drop was about 2 years ago in early February 2018 when the Dow lost -2,326 points.
The fact though is that we do NOT measure performance in points but instead in percentages. On a percentage basis the Dow is off -12.4%. This is a big move but nothing close to the worst seen over the Dow’s 120+ year history.
Source: www.YahooFinance.com and Patton Fund Management, Inc.
The above table shows the biggest 5-day declines in history for the Dow Industrials. It’s notable that several of these big declines were around the crash of ’29 and depression that followed. That does make our decline last week a bit different than others in that it occurred immediately after setting a record high. For example, when the market crashed in 1929, stocks had already been declining for about two months and down more than -20% and then crashed. The same was generally true for the crash of 1987 as stocks had been declining for about 2 months and were down more than -17% before the crash occurred.
The only major asset class falling from their highs more than large U.S. stocks is small U.S. stocks down -13.1%. The losses have been a bit less severe around the world with international developed markets down an average of -9.8% and emerging markets off just -8.4%. In the developed world Japan’s market has been one of the better performing down -7.8% while the Eurozone is off -10.8%. Somewhat surprising is that China’s market is only down -4.3% since the markets decline started 7 trading days ago. Some of this is being explained by the news out of China improving with people getting back to work and some relaxing of the curbs on transport and movement. Year-to-date their market is off just -6.8%.
Diversification into alternative investments has helped during the market selloff. Gold has been the best relative performer, seen as a safe haven during times of fear, falling just -2.2% since the markets’ peak. Real estate and commodities have been little help with real estate stocks down -11.3%, still a little better than the S&P 500’s -12.4%, and commodities are off -10.5% due the drop in the price of oil.
Overall bonds have been the real stars of the show higher by +1.6% during this stock market collapse. The gains have not been evenly spread among all types of bonds though. U.S. government bonds, considered the safest invest on the planet, have been the best performers jumping +3.5% during this time with yields falling to record lows. High-yield corporate bonds on the other hand have fallen by -2.5% as investors consider the increased risks during an economic slowdown.
As noted above, only 2 stocks among the 500 in the S&P 500 were higher while the other 498 declined. One of these two stocks was Regeneron Pharmaceuticals (REGN). As you may anticipate, the company is working to develop a treatment for the coronavirus. For the week this stock is higher by +10.3% and now +18.4% for the year. Longer term though this stock has struggled still down about -25% from its all-time high hit nearly 5 years ago in mid-2015.
A couple of the hardest hit sectors were travel and energy stocks. Travel stocks are down on falling demand due to travel restrictions and route cancellations due to the coronavirus. Some of the worst performers shown in the following table:
Energy stocks are suffering due to the falling price of oil dropping below $50 per barrel on concerns of slowing demand due to a possible global economic slowdown. Some of the biggest losers are listed below:
The following are a few notable stocks that held up far better than the average:
- Netflix (NFLX) down -2.9%: investors believe its streaming video service should be unimpacted by the coronavirus.
- Clorox (CLX) down -3.2%: demand for the company’s hand sanitizers and disinfectants rise over mounting fears of the coronavirus.
- MarketAxess Holdings (MKTX) down -4.6%: the increase in market trading volume should be positive for this company that operates an electronic trading platform.
Economic Indicator - Reported
The S&P CoreLogic Case-Shiller 20-city price index posted a increase of +0.4% for the month. Although prices rose by +2.9% in 2019, this was a slowdown as compared to recent previous years with some of the coastal cities experiencing the biggest disappointments.
Consumer Confidence came in weaker than expected at an index reading of 130.7 as compared to economists’ estimate of 132.5. This reading was taken in early February though before fears of the coronavirus heightened.
New home sales jumped +7.9% month-over-month to an annualized rate of 764,000. There were significant differences from region to region with growth highest in the Midwest up +30.3% while the South saw a decline of -4.4%. Overall home sales are at the highest level since mid-2007.
Consumer spending inched higher by +0.2% in the most recent month which was half the rate from the month before. Spending has been slowing since last summer and is not expected to increase much as long as the coronavirus persists.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- Employment Report and Unemployment Rate
- ISM Manufacturing Index
- Factory Orders