After The Close

Markets held hostage by the unknowns of an economic stop

by Anthony M. Saglimbene

Excerpts from an article published by Mr. Saglimbene, a Global Market Strategist with Ameriprise, analyzing the volatility within the markets as a result of Coronavirus. Reprinted with permission. Visit ameriprise.com to read the entire article.

March 18, 2020 — The damage to global stocks has been immense. Before U.S. markets even opened today, the average country stock market was down 20% month-to-date and lower by 26% year-to-date, according to Bespoke Investment Group. Among more than 70 country stock markets, Russia and areas across Europe have seen the most pronounced selling pressure over recent weeks.

Here at home, the Russell 2000 Index is lower by over 33% this month, and off by 41% for the year, through today. Growing concerns regarding U.S. small and mid-sized companies’ ability to withstand a prolonged economic stop weigh heavily on the asset category. For the S&P 500 sectors, Energy is down over 60% this year, with other cyclical industries, such as Financials down at least 30% year-to-date. Considering the aggressive declines across the world, the roughly 12% decline in Consumer Staples this year, and a 16% drop in Utilities, seem manageable on a relative basis.

Upside Down

That statement alone reflects just how upside-down our environment has quickly become — and how much damage stocks have already incurred. On the macro front, interest rates have been slashed to zero, and the Federal Reserve is quickly acting in other ways to help keep the economy’s “plumbing” working effectively. Fiscally, the U.S. government is currently discussing $1 trillion-plus stimulus efforts as well as plans that could put cash directly into Americans’ hands so they can weather the growing health crisis.

With more consumers hibernating in their homes, and economic activity quickly grinding to a halt, we believe stock prices around the world now reflect a global recession. However, the question that remains unanswered is for how long this temporary condition will alter daily life and the degree to which growth will fall.

On the Day

Around 1 p.m. EST., stock declines triggered yet another trading halt. Today’s drop in equity prices has entirely erased all of the Dow’s gains since January 2017. At the core of today’s decline was a market continuing to struggle to make sense of the fast-flowing news headlines and rapidly changing business/economic climate.

Fluid details over a government stimulus plan, growing solvency issues across airline and hospitality industries, liquidity fears, and plummeting oil prices are just a sampling of the news items that pressured stocks on the day. WTI oil shed 17%, U.S. shares fell more than 5%, and in an unusual move considering the selling pressure in stocks, the 10-year U.S.

On the macro front, interest rates have been slashed to zero, and the Federal Reserve is quickly acting in other ways to help keep the economy's "plumbing" working effectively...

Treasury yield moved “higher” as investors sold government bonds. Investors selling what was liquid, against a backdrop of likely more government debt issuance to finance a stimulus package, helped drive yields higher. Stocks did reduce losses into the close.

Committee View

We continue to believe if you can look out a few years from now, and disconnect from the here and now, you’ll see the long-term buying opportunities being created today. But we also recognize each investor’s circumstance is different, and your advisor is a critical touchpoint in addressing concerns and potential opportunities for your portfolio.

 

Read the full article here.

 

 

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