The Major Markets saw red again last week as the coronavirus outbreak continued its spread across the globe. The MSCI Emerging Market Index experienced the largest drop as it fell an astounding 5% by the end of the week. Last week’s losses were so significant that it took all but the Nasdaq composite into negative territory for the year, wiping away the early January gains.
After reporting over 4,200 cases of the Wuhan Coronavirus last Sunday, China’s National Health Commission reported ever increasing numbers with each passing day to arrive at over 20,000 cases this week with the death toll now surpassing 420, including the first reported death outside of China.
The Coronavirus situation is important to watch, not because there is a likelihood of an immediate exposure currently, but because of the impact as well as the feared impact of the virus to the global economy. An indication that the global economy may already be slowing has been seen in base metals. Last week, the S&P Base Metals indices experienced another significant pullback. YTD, the losses in metals now range from -2% to -10%.
Over the weekend, the People’s Bank of China announced that they would lower the seven-day reverse repo rate and also injected 1.2 trillion yuan, or approximately ($173 billion US dollars) into money markets. Furthermore, the China Securities Regulatory Commission implemented a temporary ban on short-selling to help calm the market from a feared selloff.
However, Chinese markets reopened Monday morning local time only to see the Shanghai Composite fall 7.7%. In fact, over 3,250 stocks on the Chinese exchange traded down to their limit before breakers went into effect to prevent further selling.
Back stateside, the United States began a travel ban on Sunday night at 5:00 PM ET which temporarily denies entry for any foreign national who visited China within the last 14 days. Numerous other countries have also followed suit. Some countries like Canada, have advised their citizens not to travel to the region and have seen their largest airlines suspend flights to china for the month of February.
The flight to safety was evident in the yield curve again last week. After a substantial drop in the 10-year to 1.70% on the 24th, the 10-year yield closed out the first month of the year dropping down to 1.51%.
U.S. (2020). China moves to limit short selling as virus looms over market reopening. [online] Available at: https://www.reuters.com/article/us-health-china-shortselling/china-moves-to-limit-short-selling-as-virus-looms-over-market-reopening-idUSKBN1ZW0P2 [Accessed 4 Feb. 2020].
Bloomberg.com. (2020). China’s Worst Rout in Years Has 3,257 Stocks Falling by Daily Limit. [online] Available at: https://www.bloomberg.com/news/articles/2020-02-03/trading-china-s-worst-rout-in-years-with-3-257-stocks-limit-down [Accessed 4 Feb. 2020].
Laura He, C. (2020). Chinese stocks plunged 8% as coronavirus fears took hold. It's the worst day in years. [online] CNN. Available at: https://www.cnn.com/2020/02/02/investing/china-markets-coronavirus/index.html [Accessed 4 Feb. 2020].
The S&P 500® Index is a capitalization index of 500 stock-designed to measure performance of the broad domestic economy through changes in the aggregate market value of stock representing all major industries.
The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes over 2,500 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes
The MSCI World Index, which is part of The Modern Index Strategy, is a broad global equity benchmark that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World benchmark does not offer exposure to emerging markets.
The MSCI Emerging Markets (EM) Index is designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets countries of the Americas, Europe, the Middle East, Africa and Asia. As of December 2017 it had more than 830 constituents and covered approximately 85% of the free float-adjusted market capitalization in each country.
The S&P GSCI Crude Oil index provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
Companies in the S&P 500 Sector Indices are classified based on the Global Industry Classification Standard (GICS®).