Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
All data is for the week ended March 6, 2020.
Most equity markets edged up for the week with the S&P 500 up 0.65%, the Russell 2000 down 1.81% and the NASDAQ up 0.12%. Overseas, the international developed markets (MSCI EAFE) added 0.35% while the emerging markets (MSCI EM) gained 0.69%. Volatility has increased sharply over the last few weeks; this tends to be washed away over time. Thus, long-term investors should avoid trying to trade and time the markets. They should ensure they are balanced to weather a downturn and thrive in a rebound. (1)
The Federal Reserve – in a surprise move – lowered interest rates by 50 basis points to a range of 1.00-1.25% on Tuesday due to the risk of an economic impact of the coronavirus. (2) Investors had been awaiting a rate decision at their next scheduled meeting on March 18. The action came after finance ministers and central bank governors from the leading western nations (G-7) pledged on Tuesday to use “all appropriate policy tools” to maintain economic health as coronavirus spreads around the world. (3) Interest rates on the benchmark 10-year Treasury notes dropped to a new all-time low of 0.90% that day and continued to drop in subsequent days, finishing the week at 0.74%.1 This week lower oil prices (see below) is likely to pressure high-yield bond values lower.
OPEC warned that a prolonged outbreak of Covid-19 could cut global economic growth from nearly 3% to 1.5% this year, indicating lower demand for oil and other sources of energy. At the end of the week, the Russians refused to agree to OPEC’s proposed production cutbacks and over the weekend the Saudis declared an oil price war. This drove down West Texas Intermediate (WTI) crude oil prices to $31.69 per barrel, lower by 30% since the end of February to a point which is below cost for many U.S. producers – which should result in lower U.S. production. Year to date WTI crude is down 48%. (4) All energy stocks are opening significantly lower today.
Payrolls rose a dramatic 273,000 in February, a significant beat from the 175,000 consensus estimate. The prior month’s number was revised upward to 273,000, also. While this is backward looking, it is a clear indicator that core economic growth has been strong. The unemployment rate fell back to 3.5% while average wages rose 3% year-over-year. (5)
Proprietary portfolio happenings:
AeroVironment Inc. (AVAV), a Core Select holding, unexpectedly raised guidance in a strong competitive position when they reported quarterly results. (6) Shares advanced 19% for the week.
Costco (COST), a Core Select holding, advanced 10.7% last week following a revenue and earnings report that beat expectations as consumers gravitated to the wholesale club retailers to stock up on basics in fear of the coronavirus. (7)
UnitedHealth Group Inc. (UNH), a Core Select holding, advanced 11.3% last week following the surprise showing by Biden over Sanders in Super Tuesday voting since Biden is expected to be less damaging to the healthcare industry. (8)
Did You Know? In 2003, Dr. Roger Mugford invented the “wag-o-meter” a device intended to interpret a dog’s mood by measuring the wag of its tail.]
Sources: (1) JP Morgan Weekly Market Recap 3-9-20, (2) Federal Reserve FOMC Statement 3-3-20, (3) Reuters: “Update 1-G7 to Employ ‘all Appropriate Tools’ to Combat Coronavirus Risks”, (4) Oilprice.com 3-9-20, (5) US Department of Labor 3-6-20, (6) AeroVironment investor relations 3-3-20, (7) Barron’s: “Costco Earnings Beat on Coronavirus Prepping” 3-6-20, (8) Seekingalpha: “Bargain hunters jump into health insurers after Biden surge” 3-4-20