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Coronavirus concerns dominated trading last week as bonds outperformed with the exception of high-yield. Equity prices as measured by the S&P 500 moved dramatically in both directions and eventually settled roughly back at the point from which they started.
There are a number of equity issues that have diverged from the overall market. The Dow transport stocks have experienced brutal declines.
The coronavirus is here to stay as a global phenomenon and we will be dealing with its acute effects for several months to come. Market participants are trying to discount the financial impact on companies with scant information and even less knowledge about what is to come. Although it is hard to predict what will happen in the next few months, at some point, the virus’s negative economic impacts will improve. Dislocations that are occurring now, will become opportunities. Be on the lookout for such opportunities. If opportunities are found, invest wisely and cautiously.
Action by the Fed to lower rates, raises the question of whether and potentially when, certain interest rates may reach the zero bound. Once rates reach the zero bound, it remains to be seen whether bonds will continue to have a moderating or hedging effect on balanced portfolios. In other words, a portfolio consisting of 60% stocks and 40% bonds may begin to lack intended stability. Portfolio construction will have to be altered in order to achieve a similar outcome as compared to to intended should this come to pass. Think about what this could mean for your portfolio. Talk about what this could mean for your portfolio with your investment professional.
Expect more volatility in the coming week. The biggest dividend play in the coming week is still likely to be washing your hands.
All the Best!
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