- The governments’ response to the new COVID-19 pandemic has caused complete mayhem in global financial markets, with volatility extremely high and stock prices falling abruptly. The S&P 500 index tumbled 12% on Monday, while the Dow Jones shed 3,000 points, in what was the index’s worst day since the market crash of 1987.
- The U.S. Federal Reserve cut interest rates to zero and pledged to buy up to $700 billion in bonds and mortgage-backed securities, but the move failed to appease markets. As countries around the globe declare states of emergency in order to contain the spreading of the virus, a severe global recession is highly likely.
- OPEC, the petroleum cartel led by Saudi Arabia, and Russia failed to agree on a deal to cut oil supplies, triggering a massive sell-off in oil prices, at a time when demand for oil has already taken a hit from the COVID-19 pandemic. Both Russia and Saudi Arabia quickly boosted their output in a move to gain market share.
- The European Central Bank’s head Christine Lagarde failed to reassure bond markets, causing a sell-off in Italian government bonds. Lagarde admitted to making a mistake when she indicated she does not look to emulate her predecessor Mario Draghi by doing “whatever it takes.” She quickly backpedaled and said in a televised interview that the ECB was “fully committed” to helping the eurozone region in such difficult times.
- The Bank of Japan committed to doubling stock purchases and helping companies get loans in order to counter the negative effect of the COVID-19 pandemic. The country’s central bank said it is very important to keep financing available for small- and medium-sized companies.
- The U.S. labor market appeared to be in quite good shape before the COVID-19 pandemic, when 183,000 jobs were added during February. However, March figures are likely to be different as a recessionary fear looms.
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U.S. Broad Indices
- All U.S. equity indices were down for the past two weeks.
- Vanguard’s S&P 500 Index fund (VFIAX) was the best performer from the pack with a decline of 8.56%.
- Meanwhile, Vanguard’s small-cap stocks fund (VSCIX) shed nearly 17% and is the worst performer from the bunch. Year-to-date, the fund is down 26%.
- In fixed income, the performance picture was rather mixed.
- The only gainer from the pack was Vanguard’s U.S. short-term Treasuries fund, (VFISX), which rose marginally by 0.28%, as yields on government bonds fell to all-time lows across all maturities after the Federal Reserve cut interest rates.
- On the flip side, high-yield corporate bonds fund (VWEHX) took a hit, losing nearly 7% of its value, the worst performance from the pack.
- All sectors were down, but the divergence in performance looks quite interesting.
- Vanguard’s energy sector fund (VGENX) tumbled 27% as it was hit by the COVID-19 pandemic and the breakdown of negotiations between OPEC-Russia.
- With a drop of just 3.52%, consumer staples fund (VCSAX) was the best performer, as demand for daily necessities has increased. Also, this category is expected to be hit the least by the pandemic thanks to its stability during market downturns.
- Fidelity’s latin America fund (FLATX) crashed by 26%, in a surprise turn of events, given that the region has not seen many cases of COVID-19.
- The pack’s most resilient country was China (FHKCX), which seems to have contained the virus. Also, Chinese shares had fallen dramatically when COVID-19 was only a domestic issue.
- All alternative asset classes have posted declines.
- PIMCO’s commodity fund (PCRIX) has lost 13.6% for the past two weeks, the worst performance from the pack.
- Meanwhile, PIMCO’s emerging markets currency and short-term investments fund (PLMIX) declined 4.5%, posting the best performance from the alternatives segment.
The Bottom Line
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