ND&S Weekly Commentary 3.24.20 – Coronavirus Uncertainty

March 24, 2020

First and foremost, we hope that all of you and your families are well. Please follow the Covid-19 protocols in your communities. This crisis will end, and we can all do our part to slow the spread of this pervasive virus.

Last week was another volatile and nerve-wracking week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19 and the massive impact on economies around the world. The Dow has now erased three years of gains in a month while historically it took the market on average 18 months to move from peak to trough.

On the week, the S&P 500 weakened 14.95% and the DJIA declined 17.29%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.14%. International markets were not as bad, but they also gave back ground with developed international (MSCI EAFE) -5.76% and emerging markets (MSCI EM) -9.79%. Bonds were not immune to the chaos with the Barclays Aggregate down 2.29% on the week. The 10yr Treasury ended last week at a yield of 0.92% versus 0.94% the week prior.

There are some difficult days and weeks ahead as quarantines and lock-downs grow. Yes, markets have already priced in a global recession, but the uncertainty from day to day will likely keep investors on edge. The Federal Reserve has been very aggressive in their monetary response, and we sincerely hope and expect that Congress will put aside its pettiness and pass an impactful stimulus bill … our workers and our country deserve no less.

Markets are most certainly displaying the tell-tale signs of panic and capitulation. The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.

It is our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, but we remain cautious and don’t plan on jumping at the first sign of a bounce … a bottom will take time to form. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.

“No problem of human destiny is beyond human beings.” – John F. Kennedy