EZ Bites -- Week ending 2/28/20
- Equity markets endured their worst single week since 2008 over concerns about the international spread of the Coronavirus.
- Stocks faced selling pressure throughout, as pandemic-related fears caught up to the market, which appeared immune to these concerns just a week ago. The accelerating spread of the coronavirus outside of China was the main worry, leading to greater uncertainty about the viability of global supply chains, and resulting in the total weekly decline of approximately 12% in the S&P 500.
- Catalysts included Apple's announcement that its earnings will be disrupted by supply chain effects, and U.S. health officials acknowledged that the coronavirus is likely to spread through the U.S., both which contributed to the pressure on stocks.
- On a positive note, although Friday's market losses at one point looked to be as much as 3-4% down for the day, that changed in the last half hour of trading as furious demand for discounted equities brought prices back almost to neutral for the day. Moreover, stock futures for S&P's Monday open are up approximately +1% at the time of this EZ Bite email. This provides hope that there may be some institutional resistance to further drops without some further external negative headlines.
SECTORS:
All 11 S&P sectors were lower for the week. The Communication Services sector was the only group with a loss less than 10.0% while the remaining sectors retreated between 10.4% (Consumer Staples) and 15.4% (Energy).
Treasuries charged higher throughout the week, sending the 10-yr yield lower by 34 basis points to a fresh historical record low of 1.13%.
PANIC?
A 10% pull-back in equities is quite common, historically averaging about once a year. The last time there was a 10%+ pull-back was November-December 2018, so it is almost 1.5 years since the last correction, therefore it can be said that this correction is due,
We have heard from many subscribers, and want to reiterate that we have been continually monitoring and assessing the situation without pause. To be frank, the continued decline over the last five days has certainly surprised us. But we are very focused on the long run. That being said, we understand the virus is a fluid situation and we will continue to monitor it effects on the market. We encourage investors, as we have since 2002, to hold a diversified portfolio of assets, to remain disciplined by avoiding impulsive decisions based on fear and uncertainty, and to stay focused on their long-term goals.
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