February – March 2020

U.S. Economic and Market Highlights

Coronavirus COVID-19 Response

  • Governments around the world have responded to the pandemic by passing legislation for relief packages, in various amounts, to provide humanitarian and economic aid to its citizens.

  • The U.S. Congress passed legislation for a massive $2.2 trillion relief package which translates to approximately 10% of U.S. GDP. The main provisions of the legislation include significantly expanding unemployment insurance benefits; onetime stimulus checks to individuals based on income; and funding for local governments, small businesses, specific industries including health care and airlines, and companies deemed important for national security. Also, a portion of the funding passed will be sent overseas to prevent the spread in other countries.


  • The U.S. Federal Reserve announced unprecedented moves to essentially provide limitless quantitative easing (QE), meaning that they are prepared to purchase unlimited amounts of Treasury debt and mortgage-backed securities, and investment grade corporate debt and investment grade bond ETF funds to inject markets with liquidity.

The Economy

  • Until the COVID-19 cases expanded outside mainland China, leading economic indicators showed signs of continued economic expansion. Now, the global pandemic’s impact on health, employment, corporate earnings, and economic growth is likely to be negative for months to come.
  • The U.S. economy shed 701,000 jobs in March, abruptly ending 113 straight months of employment growth as stringent measures to control the COVID-19 outbreak closed businesses and factories. The unemployment rate jumped to 4.4% from February’s 3.5%, marking its largest unemployment percentage-point increase since 1975.
  • The U.S. fiscal budget deficit will increase significantly as the U.S. Treasury floods the world with U.S. Dollars. The result of this could be higher inflation which would weaken the relative strength of the dollar compared to other currencies, and thus reverse the recent trend. A weaker dollar would help to alleviate liquidity stresses in the financial system and stimulate trade with other countries who would better be able to afford U.S. products and services.
  • U.S. crude oil prices fell to an 18-year low of near $20 per barrel, amid the pandemic crisis, as demand for oil weakened and an oil- price war between Saudi Arabia and Russia triggered the price decline. The energy sector was the worst performing group in the first quarter.
  • The silver lining, of the economic slow-down, is that vehicle traffic has been drastically reduced, and there has been an incredible drop off in pollution, especially in areas closer to the ocean.
  • It is thought by many analysts that as we change our habits, the lessons we learn about commuting, working from home, and not polluting the air will sink in, and we may never go back to the way we were, particularly the longer the pandemic drags on.


Fixed Income

  • Central banks around the world implemented emergency interest rate cuts. The Federal Reserve’s overnight policy rate was cut to between 0% and 0.25%, while the ECB’s rate is at -0.50%.  The world is awash with negative-yielding debt, currently concentrated in the euro zone, Switzerland, and Japan.
  • Because central banks’ policy rates are a major driver of bond market yields, a large percentage of the available government and high-quality corporate debt in the euro zone and Japan trades at negative yields. An investor who purchases one of these negative-yielding bonds receives a lesser amount in combined coupon and maturity payments than was paid at purchase.
  • Credit markets have been hit hard by the impact of the pandemic due to liquidity constraints driven by a large volume of selling by retail and institutional investors, in an effort to raise cash.
  • Also, corporate bond prices dropped because many bonds were downgraded along with the stock market decline and anticipation of lower corporate earnings.


  • Industries that reported the steepest drops in activity included consumer facing industries such as restaurants and hotels, as well as those bearing the cost of travel restrictions such as travel and tourism. Manufacturing activity showed a smaller downturn relative to services.
  • For the past several decades, the CBOE Volatility Index (VIX) had an average measure below 20. Over the past six weeks, the VIX elevated above 80, at least once, and has held a measure above 50 during most of March.
  • The recent market sell-off included the S&P 500 stock index’s quickest correction and worst weekly loss since the financial crisis in 2008. Also, in turn during that time, the S&P 500 posted its largest three-day rally since 1933, following one of the worst weeks in the index’ history. The three-day rally totaled 17.6%. The short-term gain helped the S&P 500 claw back half of its 33.8% drawdown from its peak on February 19.
  • Analysts forecast negative first quarter earnings growth followed by an improvement later in the year. But estimates may be revised lower if the COVID-19 outbreak worsens beyond predictions. The energy and financial sectors led the stock market decline into the current bear market, while the communications and health care sectors performed better as “stay-at-home” and biotechnology stocks signaled near-term promise.
  • If most of the businesses that were forced to close are able to resume activities in a reasonable period of time, we believe that the recovery will resemble those in the past. On average, bear markets have lasted 14 months in the period since World War II.
  • In this environment, long-term investors benefit mostly from professional managers who focus on a disciplined process of investing in high quality companies and funds based on fundamental analysis, patience to benefit from a longer-term time horizon, and tactical capabilities to capitalize on “buy-low” opportunities.
  • It is commonly expected among professional money managers that the stock market will likely retest the current bear market lows before a recovery will occur. To quote Jeff Gundlach, a well-known money manager, “We will get to a better place after a period of sacrifice.


This communication was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.