Fears around COVID-19 (coronavirus) have caused an amazing amount of volatility over the last few weeks. As of the evening of Monday March 9th, 2020 most equity markets are down around 21% from their peaks. On the other hand, bonds are up around 15% from their September 2018 lows. Commodities have taken a hit over the last couple weeks but took a big hit due to the changing tactics of Saudi Arabia over the weekend.
It is tough to predict the long term effects of these issues, however, most economists believe the tactics being employed worldwide to reduce further spread of the Coronavirus are causing reduced economic activity. As economic activity and supply chains slow, we have most likely entered a period of stagnant or reducing GDP growth worldwide. Central banks worldwide are working on strategies to provide support if necessary. Additionally, the US government is looking at various stimulus package options.
An interesting development along with this volatility is reduced US Treasury yields. For the first time in history yields on 2, 10, and 30 year Treasuries all went below 1% on the evening of Sunday March 8th. This presents opportunities and challenges. The opportunity is that the US government can now
borrow money at around 1% interest for 30 years. This is an interesting source for potential stimulus packages that can include contributions to infrastructure, health, education, research, alternative energies, new technologies, bailouts and other investments that can significantly benefit the future economic potential of the country. Challenges are mainly that reduced yields create the need for changing strategies for retired individuals who depend partially on these yields to fund retirement expenses.
We are keeping a close eye on all of these variables and their potential effects on various aspects of client portfolios. As bond markets decline we will be taking gains from that asset class and cherry picking asset classes that are down to buy into using our tactical and strategic rebalancing techniques.
With all of these variables and others coming to the forefront daily, it is important for you to discuss your portfolio and plans with your investment professionals.