Market Perspective 3/20/20
Weekly update 3/20/20
Imagine yourself shopping for a new house. Your real estate agent texts and says, “Go on in. Look around, I’ll be there soon.” After checking out the kitchen, you make your way to the basement to check out the mechanical systems. The lights are off and its pitch dark. “Where is the switch,” you ask yourself.
Cautiously you take a couple of steps. You’re padding your hands around the walls in search of a light switch. You know intuitively that there are lights in the basement and they will come on once you flip the switch. Your intuition also tells you that switches are often close to a doorway. At this moment there is uncertainty. The location of the switch is not clear but you know that you will find it, eventually.
In our view, this is where the financial markets are at. We have experienced a swift 21-day decline in prices and valuations--only comparable to a few other times in history. Market participants are sifting through newsfeeds related to virus status, stimulus packages, market volatility, and interest rates. All of this looking is in search of direction, the light switch if you will.
Financial markets like home purchases, we believe, require a longer-term view. Just because the lights are currently off doesn’t mean we should leave. That said, we are not about to go sprinting into an unfamiliar dark basement. The lights of the financial markets are wired and there is power to the house.
Updates on the week:
As of March 19, total global COVID-19 cases totaled 245,484 of which 86,035 total recovered (source: Johns Hopkins CSSE)
Social distancing measures were rapidly put in place
For the first time since onset of COVID-19, China’s National Health Commission reported no new domestic cases (source: Johns Hopkins CSSE Situation Report for March 19)
US government invokes the Defense Production Act in order to increase the production of critical supplies and equipment to support COVID-19 response
Monetary actions: US Federal Reserve cut short term interest rates to 0% (lowest since December 2015), providing liquidity and stimulus to the financial markets
Related, mortgage rates hovered near record lows
Fiscal response: US officials are working on loan subsidy programs, increasing paid sick leave and strengthening unemployment benefits
Financial markets
This has been a week where virtually all asset classes declined in price
US stock market (S&P 500) is down 31% from the highs set during late February
10 year US Treasury Bond yield is 0.90%. Very low, however still among the highest in the developed world
Oil prices are below $30/barrel—21 days ago: near $60/barrel
Gold is at $1,488/oz.—21 days ago: near $1,640/oz.
