28 February 2020

Market Update

This week the US S&P 500 posted its biggest percentage drop since the GFC and is now down by around 12% since the peak on 19 February.

This has effectively seen a reversal in the gains achieved since October 2019, but to put this in perspective, is still ~26% above the lows seen in December 2018.

Overall the Australian and the European stock markets are all weaker this week.

The coronavirus concerns continue to drive risk-off sentiment in equities. The focus remains on the spread outside of China, even if the number of absolute cases is still low.

The areas of South Korea, Italy and Iran are under intense scrutiny. The attention is also shifting to the US, particularly after the CDC confirmed the first possible community case in California and the governor said the state is monitoring 8,400 people for the virus.

It’s important to note that many companies continue to highlight the difficulty in quantifying the coronavirus impact on supply chains and earnings which creates further uncertainty in the markets.

Over the last week there has been little refuge from the selloff, with gold and bond proxies proving to be more resilient.

However, what has been negative for equity markets, has been positive for the bond markets with yields falling to record lows (positive for bond prices). Over the past year we increased our diversification across asset classes and investment strategies in portfolios, reducing the downside risk in anticipation of a pullback, such as the one we’re currently experiencing.

With the recent fears about the global spread of the coronavirus it is unclear how much longer this correction will last. It’s likely that governments will look to provide stimulatory measures once there is greater clarity around the potential impacts on the global economy.

TWD Invest believe the stock market selloff was overdue on the back of stretched market valuations, however we did not expect this weekly sell off to be as severe.

We will be providing further guidance to our clients next week.