Market Update – Coronavirus (March 25th)

Yesterday was a very strong up-day in financial markets. The S&P 500, the US equity index, was up +9.4% (the Dow Jones, up +11.4%, had its best day in decades). Markets were reacting to a $2 trillion stimulus deal that was agreed between the White House and the US Senate as part of governments’ efforts to cushion the blow from the negative economic impact of the Coronavirus crisis. As I wrote previously, governments are now super-focused on dealing with the situation from both health and economic perspectives. Another aspect of this is central bank action to stabilize and support the financial system. Earlier in the week, the US Fed announced an unusual package of programs that include what amounts to unlimited asset purchases and direct lending to the private sector via the US Department of Treasury. In doing so, the Fed is sending a strong message to markets that it will do whatever it takes to provide liquidity to the market. Despite the euphoric day in markets, there is no certainty that the worst is behind us. The news in the near term is unlikely to be good: besides updates on the spread of the virus, we will hear about business closures, job losses, supply-chain disruptions and more. It is likely that markets will continue to be volatile for the time being.

Generally speaking, it is impossible to know when the bottom in market prices has been reached. The bottom is known only in hindsight. We continue to remain vigilant, but we are also keeping an eye open for new opportunities that lower prices are now presenting to us. We can’t identify the bottom precisely, but we can identify value when we see it. Besides the fact that equity prices and valuations are significantly lower than they were, for the first time in several years, we see more value in bonds as well.

Finally – following the moderation in the spread of the virus in China, are we now starting to see this in Italy as well? It is too early to say, however, it should be noted that in the past few days, we are no longer exhibiting an increasing daily number of new cases in the country. There are new cases every day, but the daily number of new cases is falling – see chart above.

Be well, Eran Peleg