April 14, 2020

Financial Markets

  • Major equity indices hit record highs in January and February on optimism related to a phase one trade deal between the U.S. and China and improving economic data. However, beginning in February, the uncertainty caused by government mandated economic shutdowns to combat the COVID-19 pandemic sparked sharp price drops for risk assets.  The 11-year bull market for U.S. equities ended in March.
  • S. Treasury bond yields sank on safe haven demand. The entire U.S. yield curve fell below 1% for a time.  Non-government bond yields rose sharply and prices fell as investors tried to raise cash which created liquidity issues.
  • Oil prices sank to 18-year lows due to a demand shock and a market share war between the Russians and Saudis.

Overview of the Economy

  • The year started on a strong note until the virus related shutdowns. Data on new jobs was better than expected with 225,000 new jobs in the U.S. in January and 270,000 in February.  S. housing starts were up at mid double-digit rates from the prior year in January and February.  The non-manufacturing index in the U.S. rose more than expected.  The manufacturing index for the eurozone increased for the third consecutive month in February.

Notable Events

  • Phase one trade deal signed by the U.S. and China. China reduced tariffs on $75 billion of U.S. imports.
  • S. Federal Open Market Committee (FOMC) cut its federal funds target rate twice and said the near zero rates will last for an extended time. The Federal Reserve took multiple steps to provide liquidity to money and credit markets including unlimited quantitative easing.  Numerous central banks took similar actions.
  • The U.S. government passed a $2 trillion emergency economic package with aid for individuals and businesses. Numerous governments around the world took similar actions.