“Consider it all joy when you encounter various trials…”
The Bible tells us to consider trials joyfully because this tests our faith and produces endurance. * Well praise God these two weeks have been a test!
At the writing of this article, we have seen major market swings for weeks. The US Fed cut interest rates by ½ percent. Congress passed an $8B Coronavirus spending package. Now Russia and Saudia Arabia are in a pricing war on Oil.
All because of what, Covid-19? It is still an economic unknown and this is what bothers markets the most.
Certainly, there is an ugly virus that is spreading, people are extremely sick, and our prayers are for these.
Yet the question causing the market volatility is what is the economic damage? This is the data that we are looking to measure. Consider how markets have moved in the past 2 weeks; first, a major sell-off for a week, second, the ups and downs of a market trading in place for a week.
A simple Yahoo Finance S&P 500 chart shows us the bluff and bluster of the last weeks:
Weak markets behave with this type of bluster and volatility. As President Carter once said; “A strong nation, like a strong person, can afford to be gentle, firm, thoughtful, and restrained…It's a weak nation, like a weak person, that must behave with bluster and boasting and rashness and other signs of insecurity.”
The markets are insecure about the economic damage of Coronavirus and the other weaknesses this may uncover. Over the weekend, the markets added new worries with Russia and Saudia Arabia. Therefore, we expect to see more volatility in the markets over the coming weeks. Then once actual economic data from January – March becomes available we will see market moves take place, up or down, that are measured responses to known problems.
The good news is that we have already moved our models, our clients' accounts, to a risk-off position. This was due to the available data that we measured and responded to in a manner we deemed appropriate. At the moment, we feel good about this change. And in the future, we will make any changes based on facts that we can measure and respond to.
If you have any questions or just want to discuss your portfolio, please call your advisor at Sound Financial. As always, we appreciate the trust that you put in us!
In this week’s recap: U.S. stocks finish higher after a wild trading week; the Federal Reserve cuts short-term interest rates; Treasury yields decline; the latest jobs report out of Washington shows no falloff for hiring.
THE WEEK ON WALL STREET
Heightened coronavirus fears, falling yields, and Super Tuesday primary results sent stocks on a rollercoaster ride of sharp price swings, leaving stocks marginally higher for the week.
The Dow Jones Industrial Average improved 1.79%; the S&P 500, 0.61%; the Nasdaq Composite, 0.10%. Outside the U.S., developed equity markets tracked by the MSCI EAFE Index rose 2.60%.1,2
A Swift Fed Decision
Wednesday morning, the Federal Reserve lowered its short-term interest rate by 0.5% to a range of 1.00%-1.25%, making its biggest cut since 2008. Addressing the media, Fed Chairman Jerome Powell said that the move was made to give the economy a “meaningful” lift and “help boost household and business confidence.”
The question is whether reducing borrowing costs can effectively address growing business and consumer anxieties about shopping, traveling, and gathering.3
A Push Toward Treasuries
The uncertainty on Wall Street has heightened demand for Treasury bonds. Their yields typically fall as their prices rise, and fall they did last week. The yield on the 10-year Treasury dipped under 0.70% during Friday’s market day, an all-time low.4
Winter Hiring Surge Continues
The Department of Labor’s latest employment report showed companies adding 273,000 net new hires last month. Net monthly payroll growth has averaged 243,000 since December.5
The Fed’s 50-basis-points cut in the federal funds rate has now shifted the sights of investors toward the European Central Bank, which is expected to make a policy announcement on March 12. The ECB has less room to maneuver than the Fed, since its key interest rate currently stands at -0.5%. Negative interest rates have done little to lift eurozone economies, which may necessitate more-creative monetary policy accommodation from the ECB’s new president, Christine Lagarde.
Traders are also focused on whether the Federal Reserve will make another rate cut on March 18, when its next meeting concludes. The half-point rate cut this past week did little to soothe stock market concerns; opinions vary about what the central bank might choose to do next.6
THE WEEK AHEAD: KEY ECONOMIC DATA
Wednesday: The Census Bureau publishes a new Consumer Price Index, showing monthly and yearly inflation.
Friday: The University of Michigan presents its initial Consumer Sentiment Index for March, measuring consumer confidence.
Source: MarketWatch, March 6, 2020
The MarketWatch economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Monday: Thor Industries (THO)
Tuesday: Dick’s Sporting Goods (DKS)
Thursday: Adobe (ADBE), Broadcom (AVGO), Dollar General (DG), Oracle (ORCL), Ulta Beauty (ULTA)
Source: Zacks.com, March 6, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
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