Main Content

Market Update for March 9, 2020

3.9.2020 Market Update – Response to Market Volatility

Continued concern surrounding the coronavirus and more importantly, the oil price war between Saudi Arabia and Russia, led to the worst day in the stock market since 2008. While it is unnerving to see these headlines, we don’t believe the current market environment is anything like 2008. Following are a few of our thoughts:

  1. While the U.S. may experience a shallow recession as a result of the economic impact from the coronavirus, we do not see it being a long, deep recession similar to 2008. The U.S. economy was on strong footing leading into this event. Once the panic surrounding the virus subsides, the U.S. should bounce back fairly quickly to a growth environment.
  2. The S&P 500 and Dow Industrials have declined between 18% and 19.5% from the most recent highs, leaving them in correction territory for the moment. Historically a bear market requires a 20% decline and we could breach that in the next few days depending on market action, but believe there will be a point to enter the market or increase exposure to stocks.
  3. The Saudi Arabia/Russia oil price war was the primary driver of today’s market action. Energy stocks declined dramatically as oil declined 25% to just over $30 per barrel. Not only were the stocks of these companies impacted, the lower-rated debt issuers experienced severe price declines as well. This was poor timing for an oil price war as global demand for oil has fallen significantly.
  4. The 10-year Treasury yield fell below 0.50% intraday in a flight to safety trade but ended the day at 0.58%. Financial stocks fell 13% or more in response to the extremely flat yield curve and the increased risk of default in the energy area.
  5. Looking forward, the impact from the coronavirus should wane by summer, leaving a U.S. consumer with lower gas prices and extremely low mortgage rates. These two items should eventually provide a favorable backdrop for equity investors.

While we do not know at what point the markets will reach the lows, we do know that volatility has increased along with negative sentiment. These two items typically reach a point where there is a strong incentive to invest additional funds into the stock market. Until we believe we have reached that level, we are comfortable remaining with our current positions.

We realize that these types of markets are not always easy to work through and want you to reach out to your Midland Wealth Management advisor with any questions or concerns.