You’ve likely been watching the news as we have, and have seen that worries about the spread of COVID-19 along with the decline in oil prices have the stock markets reacting wildly. We believe it’s important to keep our valued clients updated about what’s happening in the markets and offer perspective where we can.
So far this month, we have seen an unscheduled rate cut from the Federal Reserve, and a brief trading hiatus for the New York Stock Exchange after the S&P 500, along with the Dow Jones Industrial Average and NASDAQ, fell by more than 7% on Monday morning. These so-called circuit breakers temporarily halt trading in an effort to calm investors during periods of volatility. Constant news about the growing numbers of individuals infected with coronavirus perpetuates fear, adds Doug Drabik, Raymond James’ managing director for fixed income research.
The OPEC feud is adding to the chaos as oil prices are tumbling. Global oil markets, which had already shown signs of weakness, declined further as Russia and Saudi Arabia went head to head this weekend over oil prices. Energy analyst Pavel Molchanov suggests that we’ll continue to see a decline in demand from the Asia-Pacific region, adding that problems on the supply side could further compound those headwinds. The price war should be temporary, but a truly meaningful, sustainable recovery requires clarity on the virus situation, and that is fundamentally a question of public health, he notes.
The bond market, by contrast, has seen a steady influx to what investors consider “safer” assets, especially higher quality, longer term Treasuries. Yields are declining, with the 10-year note dropping to 0.45% on Monday and the 30-year trading at 0.89%. As you go down the quality ladder, expect to see more spread-widening among fixed income instruments, suggests Kevin Giddis, managing director and chief fixed income strategist for Raymond James.
“Credit spreads tend to widen as Treasury yields fall,” explains Giddis. “These spreads were at all-time ‘tights’ for a while, as investors took on more credit risk to get more yield. It is being exacerbated today, especially in the energy and financial space, but it is likely going to get worse before it gets better.”
I know this kind of turbulence can be unnerving for even the most steadfast, long-term investors. Please let me know if I can answer any questions. In the meantime, we’ll continue to monitor the latest market and economic news and share the most relevant updates with you.
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Opinions expressed are not necessarily those of Raymond James & Associates.
Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk and you may incur a profit or loss. No investing strategy can guarantee success. Raymond James & Associates, Inc., member New York Stock Exchange / SIPC.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.
Debt securities are subject to credit risk. When interest rates rise, the market value of these bonds will decline, and vice versa. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Material prepared by Raymond James for use by its advisors.
