The number of reported coronavirus cases (and the media coverage) continues to increase on a daily basis. I thought it might be interesting to take a look at the financial markets as an attempt to gauge the level of concern. I am using December 10 as the date when the term first entered the public consciousness in a real way. Looking at these charts/tables I would generally say that the level of concern, as judged by these measures, is relatively low. Here is a table of the return of four major segments of the equity market, 12/10/19 through 2/14/20 (Source: Bloomberg). As you can see, stocks have done well through this period, despite the volatility/weakness in the second half of January.
| Index | Total Return |
| S&P 500 | 8.25% |
| Russell 2000 | 3.69% |
| MSCI EAFE | 2.66% |
| MSCI Emerging Markets | 5.78% |
Here is the performance of the sectors of the S&P 500 over the same time period, ranked poorest to best (Source: Morningstar). The definition of “defensive sectors” has changed in recent years as technology has disrupted so many industries, but looking at these two charts I would say that risk assets (as represented by equities) have performed well since the news of the coronavirus broke. I would also say that “quality” and “defense” have led. US large cap has outperformed and within large cap, technology, utilities and even health care are some of the best/better performers. Many of these themes in place for most of the past decade.
| Index Sector | Total Return |
| S&P 500 Sec/Energy TR USD | -5.27 |
| S&P 500 Sec/Materials TR USD | 1.56 |
| S&P 500 Sec/Financials TR USD | 3.47 |
| S&P 500 Sec/Cons Staples TR USD | 4.25 |
| S&P 500 Sec/Industrials TR USD | 5.31 |
| S&P 500 Sec/Health Care TR USD | 5.40 |
| S&P 500 Sec/Commun Services TR USD | 7.35 |
| S&P 500 Sec/Cons Disc TR USD | 9.44 |
| S&P 500 Sec/Utilities TR USD | 12.71 |
| S&P 500 Sec/Information Technology TRUSD | 17.20 |
In other markets, asset classes that are historically considered “safe havens” in a flight to quality environment have also done well. Here is the US yield curve point to point 12/10/19 to 2/14/20 showing yields declining.
Here is gold.
And here is the US dollar index.
So it appears the markets are sending mixed messages; stocks are up but “safe haven” assets (gold, Treasuries and the US dollar) are also performing well since news of the outbreak. I would make two observations:
- This suggests that while tragic, the coronavirus is not yet threatening the financial markets.
- Markets remain focused on the big picture. The US economy was a bit softer entering the New Year, traders believe the Fed is predisposed to cut rates further and the market/economic impact of previous and similar events (SARS and MERS) was muted.
It is important to be mindful that so many other things are happening in the world as they were in previous pandemic events. We will continue to monitor this, but to date it appears stocks remain focused on low rates, a friendly Fed, and an economy that continues to expand.
© 2020 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified.. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.
