Keeping Perspective

Global equity markets plunged drastically lower last week, as amplified concerns over the spread of the coronavirus (COVID – 19) stoked investor’s fears. In the U.S., the S&P 500 Index fell to a level of 2,954, representing a loss of 11.44%, while the Russell Midcap Index retreated 11.92%. The Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -12.01% over the week. Those looking for a respite from negative returns were unable to find relief in international equities, as developed and emerging markets moved 9.55% and 7.23% lower. Finally, the 10-year U.S. Treasury yield fell to 1.13%, down 33 basis points from the previous week.

In terms of interest rates, the Federal Reserve (Fed) had previously indicated that they did not anticipate making any additional moves in 2020, which would have left the Federal Funds Target Rate in a range of 1.50% – 1.75% for the year. However, the Fed did comment during the sell-off last week that they will, “act appropriately to support the economy” as needed.
It strikes us at this time that last week’s sell-off was likely overdone, specifically for investors with long or intermediate time horizons. Underlying economic fundamentals remain relatively strong and perhaps some of the sell-off is attributable to investors using the virus as a reason to take some profits from a market that continued to reach all-time highs.
While certain store and factory shutdowns will have an impact on first and second-quarter earnings and economic growth, we would expect growth to return during the second half of the year, notably during the fourth quarter. This is under the presumption that the coronavirus does not escalate into an outright global pandemic in 2020, pushing the U.S. and global economies into a potential recessionary period. In this regard, it may be helpful to consider that sharp recoveries have traditionally followed sharp sell-offs attributable to potential pandemic fears. Outbreaks may move markets significantly, but they have not driven global recessions historically.

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Disclaimer: The accuracy of this information is from sources we believe to be reliable but is not guaranteed.

Disclosure: Hennion & Walsh Asset Management currently has allocations within ...

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