U.S. stocks ended the first week of March slightly higher, but the path to get there was extremely volatile. The first four days of the week saw the S&P 500 Index move at least 2.9% each day amid heightened fears around the coronavirus and increasing U.S. recession odds. The boost to investor sentiment from the Federal Reserve’s (Fed) emergency rate cut on March 3 was short-lived.
The Dow Industrials held up best among the four major U.S. stock indexes we track, while the small cap Russell 2000 Index fared the worst. Growth style held up better than value. Sector dispersion was high as defensive and interest-rate sensitive sectors delivered solid gains, led by consumer staples and utilities, while cyclical sectors, led by energy, suffered mostly losses.
Last week’s U.S. economic data was good overall, but it did not reflect outbreak-related disruptions due to the timing of the data collection. The Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for manufacturing remained in expansionary territory at 50.1, while reflecting some supply chain disruptions. The ISM for services jumped nearly 2 points to 57.3. At 273,000, many more jobs were created in February than expected.
Developed international and emerging markets gained ground and outperformed the United States. The MSCI EAFE and MSCI Emerging Markets (EM) indexes returned 2.7% and 3.4%, respectively, through Thursday. Based on MSCI country indexes, the United Kingdom (UK) and Swiss markets were standout performers on the upside among developed markets. Despite significant virus impact, strong gains in China and Korea paced emerging markets. U.S. dollar weakness was supportive.
High-quality fixed income benefited diversified investors again this week, as fears over the coronavirus drove the 10-year Treasury yield to its lowest level ever, well below 1%. Even more notably, the Fed surprised investors with an emergency 50 basis point (0.5%) rate cute, the first unscheduled rate change since the 2008 financial crisis. Still, markets continue to price in more rate cuts, even as soon as the upcoming Fed meeting March 17–18. Credit-sensitive sectors underperformed for the third consecutive week, as both investment-grade and high-yield spreads widened to their highest levels since January 2019.
Oil prices ended lower after OPEC and Russia failed to agree to supply cuts. Meanwhile gold resumed higher, posting its biggest weekly gain since October 2011. Copper was surprisingly resilient given market volatility, remaining above its lows from early February. Finally, the U.S. dollar sold off sharply for the second consecutive week, as the decline in yields reduced the allure of U.S. debt.
Next week’s U.S. economic calendar includes consumer price inflation (CPI) on Tuesday followed by producer price inflation (PPI) on Wednesday. Later in the week, the University of Michigan Sentiment survey will be closely watched, as it will provide one of the first readings of consumer sentiment since coronavirus fears began to intensify in the United States.
Internationally, Japan is expected to report a contraction in gross domestic product (GDP) on Monday, while the UK and Eurozone will report industrial production numbers for January later in the week.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance the products or strategies discussed are suitable for all investors or will yield positive outcomes. All performance referenced is historical and is no guarantee of future results. The economic forecasts set may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Sector data is represented by S&P 500 GICS sub-indexes.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
Investing in gold is subject to risks including loss of value. The price swings in commodities and currencies can result in significant volatility in an investor’s holdings.
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