Equity Overview

In the first 16 trading days of March, the S&P 500 fell over 24%.  But the index rallied strongly at month’s end and recovered almost half of those losses, finishing down 12.5%.  International markets had similar results, with Britain down 14%, Germany down 16%, and Japan down 11%.

U.S. stocks saw extraordinary volatility, with an average daily move of about 5% in the S&P 500.  This included three days above 9% and one day of 12%, and generated several trading halts.  At mid-month the CBOE Volatility Index, known as VIX, reached an all-time high.

Growth stocks outperformed value stocks, although both categories fell dramatically.  No market sector escaped the downturn, but health care stocks had the smallest loss (-4%).  Energy stocks were crushed, with the sector down 35%.

 Macro Overview

The Covid-19 pandemic shut down most of the U.S. economy in March and brought an end to the 11-year bull market.  Making matters worse, a dispute between Russia and OPEC on production cuts to reflect the reduced demand for oil led to a precipitous drop in oil prices and even more stress on the U.S. and world economy.

As businesses shuttered operations and laid off workers, unemployment claims spiked to 10-million with analysts predicting more millions to come.  Consumer sentiment as measured by the University of Michigan index fell from 101 to 89.1, its fourth largest decline in almost fifty years.

With recession almost certain and depression a possibility, the Fed took emergency action, ultimately slashing short-term interest rates to zero.  And, to keep credit markets functioning, it made an unprecedented commitment to spend nearly $1-trillion on Treasury, municipal, and corporate bonds.  In addition, Congress and the administration enacted a $2.2-trillion stimulus plan, providing support for business as well as cash payments and enhanced unemployment insurance for individuals.

The future remains unclear and will depend on the path of the current pandemic, and the possibility of a resurgence of the virus later this year or next.  But enormous resources are being devoted around the world to finding effective treatments and vaccines.  Eventually, and maybe sooner, they will be found.  And eventually, and maybe sooner, the shutdown will be relaxed, economic activity will resume, and the markets should return to a semblance of normalcy.