ND&S Weekly Commentary 3.16.20 – Markets React Wildly to Pandemic Uncertainty

March 16, 2020

We hope that all of you and your families stay healthy and safe and please follow the Covid-19 protocols in your communities. This is certainly an unnerving time and the steps being taken both here in the U.S. and abroad to combat the spread (and to flatten the curve) of the virus are unprecedented. Our belief is the faster we can shut down the spread of the virus (even if that means extreme measures), the faster we can return to a normal operating environment.

Last week was most certainly the wildest week since the financial crisis. The World Health Organization on Wednesday declared the coronavirus a pandemic. On Friday, President Trump declared a national emergency. Markets around the world fluctuated wildly all week as investors attempted to gauge the economic and social impact of the virus.

On the week, the S&P 500 weakened 8.73% and the DJIA declined 10.24%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.44%. International markets also gave back value with developed international (MSCI EAFE) -18.36% and emerging markets (MSCI EM) -11.92%. Bonds were not immune to the chaos with the Bloomberg/Barclays Aggregate down 3.17% on the week. The 10yr Treasury ended a wild week as it closed at a yield of 0.91% versus 0.74% the week prior.

The outlook for the economy and markets will depend on the world’s success at flattening the curve. Simply put, the harsher the actions to tackle this now, the quicker we can slow this virus and get people back to work. Markets always discount the future, and they have already discounted a significant slow- down and most likely a recession. No doubt, the market action last week was indicative of a panic/capitulation phase, and we suspect that the bulk of the market correction is behind us. Having said that, it is quite likely that markets could reach lower levels as more virus cases are reported. Markets will stabilize as we begin to see the virus’ peak and containment.

Our hope is that the coordinated response between government and our private sector will illustrate the power of collaboration in working for the common good. We are already seeing massive monetary and fiscal stimulus packages that will serve to support the economy through this very difficult, but temporary, time. We have been net sellers of equities over the past few months, and we continue to maintain cash levels at the higher end of our policy range. We would caution against making a wholesale change to your long-term plan or investments. As we mentioned above, it feels like we are in the fear/panic stage of the cycle where stock prices disassociate greatly from their true value. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.

“Ask five economists and you’ll get five different answers – six if one went to Harvard.” – Edgar Fiedler