March Market Commentary

US stocks plunged in March ending the 11 year bull market as the spread of COVID-19 in the US brought the economy to a near stop.  Residents of many states were told to stay home and non essential businesses were ordered to be closed.  Stocks posted their worst month since the Financial Crisis and worst first quarter ever.  In an attempt to blunt the impact on the economy the Federal government passed fiscal stimulus measures, including a package totaling $2 trillion, and declared a national state of emergency freeing up funds to fight the virus.  Economic news released in March did not reflect the full scale of the impact with only a glimpse towards the end of the month.   US companies added 273,000 jobs in February, but the weekly reading of filings for unemployment benefits surged at the end of the month to a record of 3.3 million.  Service sector and manufacturing activity expanded in February, but posted their steepest drop since October 2009 in March.  For the month, US stocks dropped 13.75% and they were down 20.90% over the first quarter.

Foreign stocks plummeted as well in March driven by the spread of COVID-19.  Italy, Iran, Spain and France were some of the particularly hard hit places as the virus spread swiftly across the world and ground economic activity to a halt in many countries.  As a result, central banks around the world announced cuts to their benchmark lending rates as well as other measures.  The European Central Bank offered banks loans as low as –0.75%, increased its bond buying program to $819 billion, and expanded the types of bonds it would purchase.  The Bank of England cut its benchmark interest rate to a record low and said it would buy $232 billion of UK government bonds. Similar to the US, countries all over the world including Germany, Japan, the UK, and France announced significant rescue packages to support businesses and workers.  Early in the month an oil price war broke out between Saudi Arabia and Russia sending oil prices plummeting.  Oil fell 66% over the first quarter to finish at $20.48 a barrel.  Its lowest level since 2002.  The bright spot was China as manufacturing climbed sharply as the country and factories got back to work after significantly recovering from the virus.  Emerging markets trailed developed markets in March and over the year to date.  Foreign stocks dropped 14.42% in March and have declined 23.35% over the quarter.

High quality bonds posted solid performance in March as investors flocked to safe havens over fears of a derailed global economy.  The Federal Reserve took multiple emergency steps during the month moving faster and further than the central bank did during the Financial Crisis.  The Fed cut the Fed Funds Rate to near 0%, restarted their bond buying program pledging unlimited purchases of government bonds, will begin making loans directly to American businesses and injected trillions of dollars into the short term funding markets.  The 10-year Treasury yield was volatile over the month, hitting a record low early in the month, rising sharply before falling to end the month at 0.70%, down from 1.13% to start the month.  For the quarter and month, government bonds were the top performer with longer term maturities performing the best. Most other bond sectors struggled with shorter term maturities holding up better.  In March, the US bond market ticked down 0.44%, but was up 2.40% for the quarter.