Coronavirus infects financial markets

Recent news about the coronavirus outbreak is tragic, with unimaginable and unmeasurable implications for the many affected. As we attempt to discern incoming economic data, our goal is not to diminish the harsh realities faced by those affected, but to keep in mind that there are economic impacts on investors and to make sense of a market environment that reacts in real time to public health emergencies. What’s happening? Global equity markets sold off sharply today following reports over the weekend that coronavirus infections are spreading outside of China at an alarming rate. The global demand shock will be hard to quantify for some time as the scope of the social and economic impacts in affected countries remains fluid. Governments are trying to balance the need to provide the public with information against the risk of causing panic. We are observing confusion among governments and policymakers, which is spurring risk-off behavior among investors. Yesterday, U.S. Treasury Secretary Steven Mnuchin told reporters that policymakers would explore options to respond to coronavirus. We think elevated levels of two-way volatility will follow today’s initial reaction to the spreading of the virus. Therefore, we caution investors against reacting to these acute price moves. Bigger

February 25, 2020 No Comments

Don’t fear stock market all-time highs

As we reach the end of autumn, let’s look back on a momentous event that occurred 70 years ago this fall — the 1929 stock market crash that ushered in the Great Depression. After that crash, stocks in the Dow Jones Industrial Average did not return to their earlier 1929 levels until 1954; that’s more than 25 years from peak to peak. Of course, the numbers don’t include dividends, which were much higher back then, but the point remains that there can be long droughts when stocks meander and don’t post higher highs. These days, we’re looking at a stock market that has hit more than 20 new highs in 2019 alone. Should we be worried? One of the hardest parts of investing in the stock market is that there is always something to worry about. This is true even when things are going well, as they are now with markets at or near all-time highs depending on the day. A worry that we hear among some of our clients is that markets are “due” for a return to normalcy and that it doesn’t make sense to get in the market near all-time highs. Here’s a quick history lesson to

December 10, 2019 No Comments

Pop quiz: When did the Dow last drop as much as it did today?

Short answer: Who cares? You’re not selling today, so don’t fret. Longer answer: The last time was eight months ago, but let’s put things in context. The Dow dropped by more than 800 points today — an amount that definitely catches attention. But in the grand scheme of things, it’s just a blip on the radar. So, what happened today? Basically, interest rates. Treasury yields have surged lately, specifically the yield on the 10-year U.S. Treasury note. It spiked last month and has continued its rise into October. A rise in yields means higher borrowing costs for corporations and investors. It also makes stocks look less attractive compared to bonds (For the pros out there, higher yields also make stocks look more expensive because of a higher “discount rate.”) On top of that, richer rates of so-called risk-free bonds can attract investors away from equities, which are perceived as comparatively riskier. MARKET CONTEXT Over the past two years, U.S. markets have soared. The Dow Jones Industrial Average gained more than 7,800 points in 2016 and 2017, and has continued rising this year. Dramatic numbers reported during the volatility of the first days of February kicked off a rockier 2018 than

October 10, 2018 No Comments