Fidelity Bank - Wealth Management
February 2020 Market Review
In February, the coronavirus (COVID-19) outbreak supplanted global trade as the main worry for the investors. Fears of near-term negative effects on Chinese and global growth, together with the expectation that central banks around the globe will provide further monetary policy support, sent core government bond yields lower throughout the month. By the end of the month, the US 10-year Treasury yield stood at a new all-time low of 1.1%. As yields fell, bonds prices increased, the Bloomberg Barclays Treasury Bond Index gained 2.65% in February while the Aggregate Index gained 1.80%.
Up until February 19th, equity markets more or less shrugged off concerns about the outbreak. Better-than-expected US Q4 earnings season, improving January business surveys data and the expectation that the coronavirus would be temporary and localized buoyed markets. However, the increase in cases outside China led to a sharp selloff towards the end of the month. Developed Market equities fell sharply, with the S&P 500 ending the month down 8.23%.
With fears of sudden economic stop, commodity and interest rate dependent companies bore the brunt of the coronavirus panic. Energy stocks plunged 14.39% and financial stocks dropped 11.19%, however, no sector provided a safe harbor, with all 11 of the Global Industry Classification (GIC) sectors losing more than 5.81% during February. Growth stocks fared better than Value stocks across market cap. Large Cap and Small Cap Growth lost 6.81% and 7.22%, respectively, while Large Cap value lost 9.68% and Small Cap Value lost 9.72%.
As investors sought for safe havens, the US Dollar gained against Developed Market and Emerging Markets currencies. The Dollar Index, which measures the US Dollar against Developed Market currencies, gained about 0.34% in February. The MSCI EAFE index lost 8.08% in local currency terms but lost more than 9.04% in US Dollar terms. The MSCI Emerging Market Currency Index lost by 1.23% versus the US Dollar in February. The MSCI Emerging Markets index lost 3.83% in local currency, but the conversion to US Dollars caused that loss to become a 5.27% for US investors. It is notable that Emerging Market equities outperformed developed markets, despite the fact that most COVID-19 infections are concentrated in Asia. Investors are factoring in diminishing rates of new infection in China compared with increasing infections in the western world.
As investors looked for safety, rates fell across the yield curve causing the Bloomberg Barclays Treasury Bond Index to gain 265 basis points in February increasing treasury investors year-to-date return to 5.16%. With the fall in rates, emerging once again is some inversion to the yield curve. One Month to 6 Month rates ended February higher than 1, 2, 3, 5, 7, and 10 Year rates. As of writing (3/10/2020), Treasury yields have pushed even lower with the 10 Year Treasury yield hitting an intraday low of 31.37 basis points on March 9th.
With the flight to safety driving down rates, Investment Grade Corporates rose 1.34% in February. High Yield Bonds lost 1.41% in February and the High Yield spread to 10 Year Treasury bonds jumped by 115 basis points to end the month at 5.08%. The long-term average spread is about 5.13%. As of writing, the spread had widened to 6.50% and High Yield Bonds had a yield of about 7.18%. Investors are concerned companies may face cash flow and financing issues should coronavirus materially impact operations.
After rising to negative 15.9 basis during January, German 10 Year Bunds closed February at negative 61.2 basis points as contagion fears on the coronavirus sent investors fleeing from risk assets. US Dollar strength detracted from Emerging Markets Debt in January, helping set the asset class back about 3.41%.
The Bloomberg Commodity Index lost 5.04% in February as fears of a sudden economic stop sent energy and industrial metals downward. Oil lost more than 13% in February. However, oil collapsed from nearly $46 dollars a barrel to nearly $30 dollars a barrel on March 9th as Saudi Arabia, OPEC and Russia could not agree on oil production levels. Therefore, Saudi Arabia proceeded to announce that it would increase its daily production of oil, sending global oil prices reeling. Typically viewed as a safe haven, the price of gold fell more than 1.30% in February as investors may have been raising cash from profitable investments to finance to new investments or margin calls. As of writing, the price of gold has risen about 6% since the end of February.
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February 2020 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data, if not otherwise noted, is as of 2/29/2020. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.