In a whirlwind of change, we traded travel, springtime recreation and gatherings of loved ones for social distancing, economic turmoil and government stimulus. The chart for this quarter shows global and U.S. coronavirus and deaths. The U.S. stock and bond market percent change is overlaid to show concurrent market and virus events

Key Takeaways:

1. Bonds did their job.

2. U.S. stocks dropped well in advance of U.S. deaths or cases.

3. Likewise, stocks often recover in advance of positive events.

Markets are anticipatory of future events. Sadly, there is no doubt that COVID-19 cases and deaths will worsen. The question is whether the market has already expected this bad news. Be cautious of lining up today’s market moves with today’s news. Notice that stocks declined well before U.S. COVID-19 cases started compounding. Today’s market reflects a collective guess of the future’s news. If you are trying to anticipate when the market will rise from the bottom, it will likely happen well before the events and conditions around us feel good. The market will sniff out that positivity well in advance. The question many are asking is, “Will the recovery in markets be shaped like a V, U, or L?” A V-shaped recovery feels overly optimistic. A U-shaped recovery feels possible. An L would be disappointing. Anything is possible. As of right now, we are not seeing daily cases or daily deaths improve. There will be days of devastatingly somber health news; hopefully, although bad, the day’s news won’t be as bad as the day before. They call this “peak new cases.” We’re all hoping that turning point is as soon as possible. As most of our clients are at higher health risk, please stay safe and please be careful. Meanwhile, we are diligently caring for your retirement planning safety.

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U.S. Equities

The coronavirus pandemic has affected everything; every single U.S. stock sector is negative year to date. The technology sector has surprisingly done the least amount of damage albeit still negative on the year. The energy sector has been the biggest laggard due to the massive slack in global oil demand with social distancing being practiced.

Foreign Equities

Every global stock market has been affected the same by the coronavirus pandemic. It is interesting to note that in countries that got the virus first (China, South Korea, etc.), their stock markets seemed to bottom ahead of what has been known as “curve flattening,” or a drastic reduction rate of new cases. We are still looking for this curve flattening to happen in the U.S

Fixed Income

Perhaps the biggest surprise in Q1 2020 was the rapid deterioration of the fixed income market. Normally high quality bonds from highly rated companies are a safe haven during turbulent times in the equity market. This time around, if it was a U.S. government treasury security, seemingly everything went into crisis mode very quickly. The good thing is the Federal Reserve was quick to act to inject liquidity in the system and it has helped. This historic move took the U.S. 10-year treasury rate all the way down to 0.40%, an all-time low.

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