The Bull, the Bear, and the First Quarter
Market highs and lows.
Investors will remember the first quarter for two reasons — the Dow Jones Industrial Average hit a new high and suffered the worst quarter since 1987.
The new year started with a continuation of strong economic growth and solid stock returns. The DJIA closed at 29,551 on February 12, an all-time high. Soon thereafter, news of increased Coronavirus cases outside of China began, and on March 12, the longest bull market in U.S. history ended.
Rarely-used trading halts were used as markets entered a free-fall. The bear didn’t stay long, though, as markets rose amid emergency interventions and stimulus from central banks and governments. Even with the gains posted in the last week of March, the DJIA ended the quarter down 23%.
All sectors fell for the quarter, with energy stocks suffering the most. In addition to the demand shock due to COVID-19, the price war between Saudi Arabia and Russia negatively impacted the sector, and the benchmark WTI ended Tuesday at slightly over $20 per barrel, losing two-thirds of its value from the start of the year.
Financial stocks also fell sharply, as interest-rate cuts have crimped banks’ profitability. While still posting negative returns, technology was the best performing sector. In fact, the only company in the DJIA to eke out a gain for the first quarter was Microsoft — and shares only rose by a penny.
Large-cap, small-cap, growth, or value — all U.S. investment styles posted losses. Fixed-income markets fared only slightly better, as a measure of U.S. intermediate and investment-grade bonds gained while other areas of the fixed-income markets fell.
In global markets, European stocks dropped as the number of deaths from COVID-19 in Italy and Spain surpassed 17,000. Chinese shares fell approximately half as much as their counterparts in the U.S. and Europe as the country started to resume business operations in March and lift quarantine measures. March data for China’s official Purchasing Manager’s Index came in above expectations, though activity remains slower than normal.
As investors fled risk assets, safe-havens like gold and the U.S. dollar outperformed. The price of cryptocurrency bellwether Bitcoin, fell, but outperformed equities.
Where do markets go from here?
As we head into the second quarter, investors have many questions about what happens next. The largest economic stimulus package in history helped stocks recover last week. U.S. Federal Reserve Chair Jerome Powell has stated that this is a different downturn as it is not based on fundamentals. “There is nothing fundamentally wrong with our economy.”
But with the United States and other countries in quarantine, many businesses will remain closed, and unemployment rates will continue to climb. The Vix, the real-time market index representing the market’s measure of volatility — and a barometer of investor anxiety — posted its biggest quarterly gain and remains elevated. As investors consider their next moves, China may offer clues on a return to activity and normalcy post COVID-19.
Markets are in constant flux, and the only thing certain is continued uncertainty. This information is for educational purposes only and should not be construed as trading advice. Past performance is not an indication of future results.
