Monthly Market Insights | March 2020
Coronavirus fears sent stocks into correction territory in February, as investors grappled with the unfolding story.
The Dow Jones Industrial Average lost 10.07 percent, while the Standard & Poor’s 500 Index dropped 8.41 percent. The NASDAQ Composite fell 6.38 percent.1
The financial markets began the month on an optimistic note, following news that China was undertaking stimulus measures to offset the economic slowdown linked to COVID-19.
But the markets quickly found themselves reacting to headlines. Stocks rose to new highs on growing confidence that China had reached containment, only to fall on reports of a spike in new cases in China.
Following the Presidents’ Day holiday, markets opened down, as concerns mounted about supply chain disruptions from China. Stocks found some footing, but lost momentum on news of more cases in South Korea.
Long Week of Selling
The selling accelerated in the final week of trading, on news of a surge of cases in South Korea, Italy, and Iran. As the week ended, the major indices found themselves in correction territory.
No industry sector escaped the sell-off in February, with losses in Communication Services (-7.68 percent), Consumer Discretionary (-6.04 percent), Consumer Staples (-6.67 percent), Energy (-17.69 percent), Financials (-8.66 percent), Health Care (-7.73 percent), Industrials (-9.19 percent), Materials (-8.81 percent), Real Estate (-5.27 percent), Technology (-7.79 percent), and Utilities (-5.66 percent).2
What Investors May Be Talking About in March
At the beginning of 2020, consensus suggested that global economic growth would likely pick up, thanks to the trade deal with China, passage of the United States-Mexico-Canada Agreement, and early signs of an economic pickup in European economies.
But the question now is, to what degree will the world’s economies be slowed by the outbreak?
Investors are expected to watch economic reports out of China and Europe as well as the initial estimate of first-quarter gross domestic product, due at the end of April.
Markets are priced on expectations of the future. But the challenge for investors has been whether the market has properly discounted the economic cost of the outbreak, given the uncertainty of estimating those costs in real time.
If reports show that COVID-19’s impact was higher than imagined, stock prices may retreat. But if data suggests it was in line with expectations, stocks may respond more positively.
Global markets ended lower, with the MSCI-EAFE Index sliding 6.32 percent.3
Great Britain’s FTSE 100 lost 9.81 percent as major markets in Europe dropped. France’s CAC 40 dropped 8.55 percent, and Germany’s DAX fell 8.41 percent.4
Pacific Rim stocks also suffered: Australia’s ASX 200 fell 8.21 percent, while Japan’s Nikkei lost 8.89 percent.5
Gross Domestic Product
The U.S. economy grew at a 2.1-percent annualized rate in the fourth quarter, unchanged from last month’s initial estimate.6
Nonfarm payrolls increased by 225,000. The unemployment rate ticked up to 3.6 percent, and wage gains also picked up, posting a 3.1-percent annual gain, slightly higher than in December.7
Retail sales rose by 0.3 percent in January, while December retail sales were revised down, from the initial estimate of an increase of 0.5 percent to 0.2 percent.8
An unusually warm January that reduced utility output and a halt in 737 MAX airplane production at Boeing led to a 0.3-percent decline in industrial production.9
Housing starts dropped 3.6 percent in January. Despite the decline, housing starts remain strong, rising 21.4 percent year-over-year.10
Sales of existing homes declined 1.3 percent, fighting the dual headwinds of higher prices and low inventory. Year-over-year sales were higher by 9.6 percent.11
New home sales leaped 7.9 percent, reaching levels not seen since June 2007.12
Consumer Price Index
Inflation ticked up by 0.1 percent in January, held in check by a sharp drop in energy prices. Core inflation, which excludes the more volatile food and energy components, was up 0.2 percent.13
Durable Goods Orders
Orders for long-lasting goods goods fell 0.2 percent. However, excluding the more volatile transportation sector, orders were higher by 0.9 percent.14
The minutes of the last Federal Open Market Committee reflected a Fed comfortable with the health of the U.S. economy and its current policy to hold federal funds rate steady.
It’s interesting to note that the coronavirus was referred to eight times in the minutes. The Fed said it would be monitoring the outbreak and its effect on economic activity.15
By the Numbers
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
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1. The Wall Street Journal, February 29, 2020
2. FactSet Research, February 29, 2020
3. MSCI.com, February 29, 2020
4. MSCI.com, February 29, 2020
5. MSCI.com, February 29, 2020
6. CNBC.com, February 27, 2020
7. Reuters.com, February 6, 2020
8. CNBC.com, February 14, 2020
9. The Wall Street Journal, February 14, 2020
10. CNBC.com, February 19, 2020
11. The Wall Street Journal, February 21, 2020
12. CNBC.com, February 26, 2020
13. The Wall Street Journal, February 13, 2020
14. The Wall Street Journal, February 27, 2020
15. The Wall Street Journal, February 19, 2020
16. Insider.com, March 12, 2019
17. Insider.com, March 12, 2019
18. Forbes.com, March 3, 2019
19. Forbes.com, March 12, 2019
20. Insider.com, March 12, 2019
21. Forbes.com, March 2019
22. Forbes.com, March 2019
23. Forbes.com, March 2019
24. Insider.com, March 12, 2019
25. Insider.com, March 12, 2019
26. Insider.com, March 12, 2019
27. Insider.com, March 12, 2019
28. Insider.com, March 12, 2019