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MCF Weekly Capital Market Review - March 23rd, 2020

The markets continue to focus on the coronavirus (Covid-19) as indexes around the globe declined sharply. The S&P 500 had one of its worst weeks since 2008 (-15.0%) and is now down -29.3% YTD.[1] From the all-time closing high of 3,386 on February 19th, the S&P 500 is down -32.0% from peak-to-trough (closed at 2,304 on Friday March 20th). Just two weeks ago (Thursday March 12th, 2020) marked the single biggest decline in the Dow Jones Industrial Average since the October 19th, 1987 crash of -22.6%[2] (by comparison, the Dow was only down -10.0% on March 12th). Monday March 16th set a new record with a decline of -12.0% in a single day. To say the very least, equity markets have been extremely volatile.

Equities are not the only asset class getting rattled. The Federal Reserve cut interest rates to 0% on the evening of Sunday March 15th and announced $700 billion in quantitative easing[3]. These are measures not seen since the Great Financial Crisis of 2007 – 2009. Just two weeks ago, the entire 30-year Treasury curve was below 1.0%. Rates have moved dramatically week-to-week with the 10-year as low as 0.54% on March 9th but as high as 1.18% just nine days later on March 18th (currently trading at 0.92%).[4] Credit spreads widened and some bond market liquidity has dried up. The Fed is likely to inject more liquidity into the system.[5]

In a few short weeks, life as we know it changed across the globe. The CDC recommended that “for the next 8 weeks, organizers (whether groups or individuals) cancel or postpone in-person events that consist of 50 people or more throughout the United States”[6]. The NBA, NHL, NCAA, and many others have postponed or cancelled seasons entirely. Schools closed. President Trump imposed travel bans on European countries and the borders between US and Mexico are closed to nonessential travel.[7] Spain, France, and Italy imposed nationwide quarantines[8]. Governors and Mayors are imposing bans on restaurants and bars. These actions are intended to slow the highly contagious Covid-19[9] which had over 316,000 worldwide cases and over 27,000 in the U.S. as of March 22nd.[10] All of these cancellations and changes in consumer behavior will have serious economic consequences. Two weeks ago, the House passed the coronavirus relief bill[11] and promised free testing for all. The current Secretary of the Treasury, Steve Mnuchin, knows that current aid has not been enough and has urged Congress to pass a larger stimulus package. It is likely that a package will be passed this week and some estimates have it topping $2 trillion[12] with plans to send checks directly to families to keep the economy afloat.[13] These would be unprecedented moves.

Many economists are predicting a recession at some point in 2020 and others are optimistic that the economy will bounce back in the second half of the year. We do not know how long the outbreak will last, and health officials are warning that it is likely to get worse before it gets better.[14] The economic data will not be pretty and this hit on the economy could last weeks or months.

Although the short-term outlook is grim, we should not lose sight of what we know in the long run: each day, millions of Americans will continue to get up and go to work (for many people over the next several weeks that may mean waking up and walking down the hallway). People will continue to innovate and look for ways to improve their lives and the lives of others. Over the past 10 years, the annualized return for the S&P 500 is +9.4%. If you believed in the long-term success of entrepreneurs and companies over the past 10 years, you were rewarded (even after accounting for the recent market decline). Investors have endured several crises in the past two decades: Dotcom Bubble, 9/11, and the Great Financial Crisis. Just like all these other events, this too shall pass. People and businesses have an incredible way of coming together when it matters most. 




Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.   MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.


S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.

MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

Bloomberg Commodity Indices are a family of financial benchmarks designed to provide liquid and diversified exposure to physical commodities via futures contracts. The Bloomberg Commodity Index (BCOM) is a highly liquid and diversified benchmark for commodity investments.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.