Equities Slump As Concern Rises – Stock Market Overview

February saw stock valuations retreat to levels previously seen in July and August 2019. Analysts believe that the pullback likely tempered several previously overvalued stocks. Valuations are now considered to be more in line with historical standards, relative to where they were at the beginning of the year. The final week of February saw all equity indices fall, as the S&P 500 Index slumped 11.49%, the Dow Jones Industrial Index fell 13.6%, and the tech-heavy Nasdaq Index gave up 10.54%. 

The pullback among all major equity indices was rapid by historical standards, but served to reign in valuations considered lofty by certain analysts. Fortunately, the stellar performance of equity markets in 2019 is serving as a buffer for the dramatic pullback, with equity levels still considerably higher than levels investors experienced at the end of 2018. 

When U.S. equity markets fell 14% over two months in 2003 during the SARS outbreak, interest rates were much higher, with the 10-year Treasury yielding over 3.5%. The yield on the 10-year Treasury on Feb 28th at 1.13% is lower than the current S&P 500 Index yield for stock dividends at 1.97% on February 28th. Analysts view the yield difference as a benefit for stocks due to yield-seeking investors. (Sources: S&P, Dow Jones, Nasdaq, Bloomberg, U.S. Treasury)

Treasury Bond Yields Drop To Historic Lows – Fixed Income Update

Treasury bond yields traded at record low levels, driven by global investors seeking safe haven assets. All Treasury maturities yielded well below 2% at the end of February, lower than the Fed’s inflation target of 2%. The dramatic drop in yields brought the 10-year Treasury bond yield to 1.13 % at the end of February, the lowest yield for the 10-year Treasury on record. An insatiable demand for global bonds brought yields lower across all bond sectors, delivering positive returns for bonds in nearly every sector to date this year.

The Federal Reserve reduced the Fed Funds rate, a key monetary tool rate, following a rare emergency meeting. The rate reduction was made with the objective of alleviating market uncertainty and shoring up liquidity for extended periods of volatility. The announcement contributed to the drop in bond yields. (Source: U.S. Treasury)

Economic Cost of The Flu – Domestic Economy

In an attempt to gauge how a virus may affect the U.S. economy, the National Center for Biotechnology Information monitors and tracks the economic costs related to influenza every year.

The estimated average annual total financial burden of the flu to the healthcare system stands at $11.2 billion, which includes medical expenses such as hospitalization, physician visits, and vaccines. A growing concern related to the coronavirus is the productivity cost associated with employee absenteeism, business travel restrictions, and other amplified preventive measures. Influenza viruses have historically inflicted companies in all industries with notable productivity costs. (Source: https://www.ncbi.nlm.nih.gov/pubmed/29801998)

U.S. Household Size Shrinks – Demographics

Family size is shrinking in the U.S., with only 2.52 members per household on average in 2019, making it the smallest size ever in the country’s history. Historical data tracked by the U.S. Census Bureau showed an average family size of 5 in 1880, double today’s numbers. The decline in family size is believed to be attributable to various economic and social changes over the decades.

Roughly 63% of households in the U.S. consist of two or fewer family members. The Census Bureau also tracks family size by state. Utah has the largest household size at 3.12 family members, while Maine has the lowest at 2.28 members.

Smaller households emerged over the past 60 years, with one-person households accounting for 28.4% of the U.S. total in 2019, up from 13.1% in 1960. Households of four or more decreased from 40.2% in 1960 to 22.1% in 2019, dropping by nearly half. (Sources: U.S. Census Bureau, Historical Statistics of the United States)

Past Pandemics & What Came Of Them – Health Overview

Over the centuries, pandemics have evolved and lasted for varying periods of time, always resulting in the containment and/or elimination of a virus. Should history repeat itself, a vaccine will eventually emerge to combat the COVID-19 virus, alleviating the immediate threat of further contamination.

Since the year that Severe Acute Respiratory Syndrome (SARS) emerged as a global threat, advancements in medical technology have drastically reduced the time it takes to develop and implement a vaccine after a new virus emerges. The current coronavirus outbreak was preceded by two similar outbreaks since the turn of the millennium, SARS and Middle East Respiratory Syndrome (MERS). SARS originated in China in 2002, spread worldwide and was contained within a few months. The World Health Organization (WHO), which tracks deaths related to pandemics globally, found that the SARs virus resulted in 774 deaths in 17 countries. MERS, also known as the camel flu, resulted in 862 deaths.

Joint efforts among international governments and nonprofit research entities have yielded extensive research on emerging infectious diseases worldwide. Several collaborating health organizations, companies, and scientists from various countries have undertaken the task to attempt to develop a vaccine for COVID-19. (Sources: The National Center for Biotechnology Information, WHO)