The volatility continued last week. After experiencing the largest weekly decline since 2008 along with the largest single day drop in the Dow, the Dow Jones Index experienced the largest single day gain, adding 1,290 points last Monday.
While Monday began with a promising start to the week, the gains were short-lived. Tuesday Morning, The Federal Reserve issued the first emergency rate cut since the financial crisis of 2008 . Despite lowering the fed funds rate by 50 basis points to 1.00 – 1.25%, the market immediately sold-off. By the end of the day, the S&P 500 ended 2.8% lower.
The domestic market staged another attempt at a recovery Wednesday, only to see the largest losses of the week in percentage terms on Thursday. Friday’s low for the S&P 500 flirted with the 2900 level before surging in the last hour. In the end, the weekly gain of 0.61% was made entirely in the final minutes of the week.
There is little doubt that the greatest driver of this market turmoil has been the news surrounding the coronavirus. Johns Hopkins University has created an in-depth tool to monitor the developing situation. As of this weekend. The number of total deaths sits at just above 4,000. With 113,605 confirmed globally, the mortality rate of this virus is 3.5%.
Outside of China, Italy has been the country to report the largest number of cases. Furthermore, the mortality rate has been reported to be much higher than the global average with a rate of 5%. This has caused leadership within the country to implement regional quarantines at the end of the week, echoing actions taken in China.
On Monday the 9th, the lockdown was expanded to cover the entire country.
This marks the first country classified as a developed nation to take such measures. It is still unclear what the economic impact will be to both Italy and the EU. For perspective, Italy’s GDP in 2018 was the 3rd largest of the EU members.
In the US, 35 states (including the District of Columbia) have reported cases of the virus. Not surprisingly, the largest numbers of these cases are in two of the most populated states, California and New York. However, the total number infected for North America remains low.
By the end of the week, the flight to safety in treasuries saw new all-time lows in yields for much of the durations of the yield curve. The 10-year closed the week at 0.74%, nearly 40 basis points lower than last week. Meanwhile, the 20 and 30-year durations were the only two notes that managed to remain over 1.0%
Tappe, A. (2020, March 3). Federal Reserve announces first emergency rate cut since the financial crisis. Retrieved from https://www.cnn.com/2020/03/03/economy/federal-reserve-rate-cut/index.html
(n.d.). Retrieved from https://www.msn.com/en-nz/news/world/italy-has-quarantined-a-dozen-cities-over-coronavirus/ar-BB10igB1
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