Weekly Commentary (03/09/20) – Markets Stabilize Last Week … More Uncertainty Ahead

March 9, 2020

Markets stabilized last week after suffering their worst weekly drop in over 10 years the previous week.

For the week, the DJIA advanced 1.79% while the S&P 500 gained 0.61%. The tech-heavy Nasdaq inched ahead by 0.10%. International markets were also positive as investors put money to work after the previous week’s sell-off. For the week, the MSCI EAFE index (developed markets) jumped 0.35% while emerging market equities (MSCI EM) tacked-on 0.69%. Small company stocks, represented by the Russell 2000, finished lower by 1.81% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 1.88% as investors fled to the perceived safety of bonds. As a result, the 10 YR US Treasury yield collapsed to its lowest yield in history as it closed the week at a yield of 0.74% (down sharply from the previous week’s closing yield of ~1.13%). Gold prices jumped as gold closed at $1,670.80/oz – up 6.82% on the week. Oil prices dropped 7.77% to $41.28 on global growth concerns, plentiful supply and OPEC disarray. Fortunately, low oil prices serve as a tax cut to consumers and businesses.

Market uncertainty remains high as the coronavirus continues to spread around the world. Adding fuel to the fire, Russia and OPEC failed to come to an agreement over the weekend on production cuts to oil. As a result, oil prices are plummeting this morning as Saudi Arabia and Russia attempt to put pressure on U.S. shale producers (lower oil prices may force many shale producers to shut-in production and/or go bankrupt). This current bout of volatility is certainly unnerving, particularly after investors have been treated with relative calm over the past few years. We don’t know when markets will bottom. We do know, however, that they will bottom. Every correction that we have ever had has been temporary, and this one will be no different.

Could more pain be ahead for investors? Of course. The uncertainty of the global growth impact from the coronavirus along with plunging oil prices will put downward pressure on stock markets around the world. We suspect that central banks and governments around the world will come to the rescue to help stabilize markets.

Patient, long-term focused investors will be well served in the end, and investors that sell based on panic rarely win over time. This recent bout of volatility reinforces the benefits of diversification as well balanced portfolios have been able to weather the storm relatively well. Investors should stay close to their long-term target asset allocations with a slight defensive bias as markets work through this period of volatility.

“Everyone goes through adversity in life, but what matters is how you learn from it.”Lou Holtz