Virus Fears Spark Global Retreat from Equities

Markets fell again this week as global leaders rushed to control the impact of the Coronavirus. Utilities led the S&P sectors for the third consecutive week, finishing ahead of consumer discretionary and consumer staples to round out the strongest sectors. Markets are still anxiously awaiting developments regarding the spread of the Coronavirus. New cases have sprung up around the world, fueling public anxiety as some experts fear that the spread of the virus may continue.

European indices declined significantly this week, with all major indices returning negative results. Japanese equities returned negative performance as well, continuing with last week’s trend. World indices are continuing to display fear in light of the spread of the Coronavirus.

Markets retreated again this week, with major equity indices bringing in negative returns. Fears concerning global stability and health are an unexpected factor in asset values, and the recent volatility serves as a great reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs, and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk tolerance can lead to smoother returns and a better probability for long-term success.

Chart of the Week

Chart of the Week Blog 2.3.2020

A perfect storm struck the energy sector this January as stocks experienced their biggest decline in 30 years. Coronavirus fears, plummeting commodity prices, and slow global growth have all dragged on energy stocks.

Market Update

Equities

Broad equity markets finished the week negative, with major large cap indices outperforming small cap. Recent fears have continued to weigh on equities, as broad market indices have declined significantly for the second consecutive week.

S&P sectors were mostly negative this week, with only two sectors returning positive performance. Utilities and consumer discretionary led as the sole positive sectors returning 0.81% and 0.13% respectively. Energy and materials declined the most, falling -5.65% and -3.54% respectively. Utilities now have the lead so far YTD, returning 6.61% in 2020.

chart 21

chart 22

Commodities

Commodities declined this week, driven by losses in oil and natural gas. Oil markets have been highly volatile, with investors focusing on geopolitical tension and global demand concerns. Global concerns surrounding the virus outbreak have further stoked demand concerns, as a significant impact on energy demand is expected as a result of the widespread fear. Weakened demand in an already challenging global market has driven oil to near 6 month lows.

Gold climbed modestly, finishing over the $1500/oz mark for the sixth consecutive week. Focus for gold has shifted to global growth and public health concerns, as geopolitical tensions seem to be fading from investor focus.

Bonds

The 10-year Treasury yields fell from 1.68% to 1.51% while traditional bond indices rose. Treasury yields fell as investors fear the prospect of a global virus outbreak. The 10-2 year yield spreads tightened significantly. Treasury yields will continue to be a focus as analysts watch for signs of changing market conditions.

High-yield bond yields fell slightly over the week, causing spreads to loosen. High-yield bonds are likely to remain volatile in the short to intermediate term as the Fed has taken a neutral monetary stance and investors weigh risk factors, likely driving increased volatility.

Screen Shot 2020 02 03 at 12.34.49 PM

Lesson to be Learned

In the short run, the market is a voting machine, but in the long run it is a weighing machine.”

-Ben Graham

It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is mission critical for long term success. Focusing on the long-run can help minimize the negative impact emotions can have on your portfolio and increase your chances for success over time.

The Week Ahead

It will be an interesting week as the economic calendar is heavy on major releases, but market are likely to still be dominated by developments surrounding the Coronavirus. Manufacturing and employment data releases will likely be unable to outweigh sentiments surrounding the spread of the virus.

Get Physician Specific Financial Planning

Work with advisors that know physicians.

Need help with something else?