Markets, Economy

Weekly Kickstart (03/02/2020-03/06/2020)

3/2/20 8:00 AM

iStock-626627280.jpgThe coronavirus-driven selloff accelerated last week, as the S&P 500 fell by 11.49 percent to 2,954.22. That left the benchmark index down 8.56 percent 2020-to-date, and 12.76 percent below the all-time closing high hit just one week earlier. The recent selling pressure has been intense but so far the peak-to-trough decline in equities remains in line with the annual average of the past four decades and well below what was seen during the global financial crisis and subsequent “Great Recession.” As for performance during the month of February, the S&P 500 posted an 8.41 percent loss, the largest since December 2018. February historically has tended to be a positive month for equities, with the S&P 500 rising 53 percent of the time since 1928. During the years when stocks fell in February, though, forward returns were actually quite encouraging. For example, in the 1- and 3-month periods immediately following a down February, the S&P 500 rebounded 60 percent of the time since 1928, with average returns of 1.2 percent and 4.8 percent, respectively.

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Further, the broad index continued higher 70 percent of the time six months after a negative February, and the full-year performance was positive 58 percent of the time. Forward returns look even better when focusing on prior periods with selloffs similar to what we saw last week. However, despite these reassuring statistics it is important to remember that past performance does not guarantee future returns, and there is still a lot of uncertainty surrounding the coronavirus that could keep market volatility elevated in the near-term. Moreover, even if the contagion is soon contained and a more severe pandemic is able to be avoided, incoming economic data during the next few months could still be very noisy due to virus-related supply and demand disruptions that have already occurred, and in turn exacerbate the swings in the markets. The upcoming election in the U.S. is another potential headwind for equities that will still be around even as the virus concerns eventually start to fade. Any regular investors unsure how to navigate this environment should consider consulting with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that the nation’s trade deficit (in goods) narrowed, home purchase applications rose, new home sales surged, pending home sales jumped, wage growth accelerated, consumer confidence strengthened, the personal saving rate increased, household inflation pressures remained muted, demand for American-made durable goods improved, gauges of regional manufacturing activity continued to stabilize, and an important measure of business investment rebounded. As for the negatives, real estate inflation firmed, and initial jobless claims increased. This week the pace of economic data picks up with several important reports on factory output, construction activity, the U.S. service sector, productivity, and employment scheduled to be released, including the potentially market-moving February job report from the U.S. Labor Department due out on Friday.

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What To Watch:

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Wednesday

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Sources: Econoday, FRBSL

Post author: Charles Couch

Disclosures