Coming into 2020, most investors believed the upcoming US election would prove to be the main market-moving catalyst, however due to the coronavirus outbreak (COVID-19) and its global reach, February 2020 will be recorded as a historic month for global markets ending in an unprecedented multi-day panic in risk markets.
The first week of the month was relatively benign: the Kansas City Chiefs won the Super Bowl, President Trump delivered a “pro-economic” State of the Union message, and the following day was acquitted by Congress on his pending impeachment. The week ended with a strong US employment figure and rates moved higher by 15 basis points on the month (US 10-year Treasury was at 1.65% on 2/5/2020).
Fed Chairman Powell spoke on 2/11/2020 mentioning that Fed Policy was currently “appropriate”, and the FOMC was monitoring the coronavirus and its threat to economic growth in Asia.
As concerns around the coronavirus and its potential economic impact spread globally, risk assets experienced a significant selloff during the last week of the month.
- Corporate spreads widened and the S&P 500 fell 12% from its February 19th high, wiping out most of the return from Q4-2019 and January 2020 (YTD S&P 500 Index -8.27%).
- US Treasuries skyrocketed, the US 10-year Treasury note closed the month at 1.15% and 2-year to 5-year maturities closed below 1.0% yields.
Masked in the volatility was the response of the market to the polarized Democratic Party and the debates held throughout the month as the Sanders campaign, emerged as a party leader.
Despite reports of COVID-19s spread in the US, by the first day of March, investors priced in the possibility of an emergency 50 to 75 basis point rate cut from the Fed, which the Fed followed through on in an emergency session, in advance of the March 17-18 FOMC Meeting.
We continue to believe in the importance of a cornerstone investment in conservative fixed income. During bouts of market volatility like we saw this month, the hedging qualities of a diversified portfolio prove to be valuable.
Please call us at 646-518-2800 to discuss current markets and how we can help meet your fixed income needs.