1st Quarter Review :

In the first quarter of 2020, we saw the 11-year bull market come to an end as the spread of COVID-19 wreaked havoc on all the capital markets around the world. Massive swings in asset prices were seen with stock volatility hitting an all-time high as measured by the Cboe Volatility Index. Interest rates also made history with the 10-year treasury hitting an all-time low of 0.318% in the quarter. As if the virus didn’t create enough chaos, a 66% plunge in oil prices put immense pressure on companies who need higher oil prices to turn a profit. Monetary help from the Federal Reserve and the recent signing of the CARES act from our government has allowed some relief, but a bumpy ride is expected for investors in the coming months.

U.S. Stocks :

U.S. stocks logged their worst quarter since the final 3 months of 2008 with the S.P. 500 declining 19.6%.This was despite a 15% rebound from the bottom seen on March 23rd as we saw the S&P 500 fall into bear market (more than a 20% drop) in just 16 days. The selloff was also very broad with 9 out of 11 sectors of the stock market down 20% or more from their 52- week highs with the exception being healthcare and consumer staples. Small and Mid-sized companies performed significantly worse with their indexes down around 30%.

International Stocks

International stocks also struggled with developed and emerging market foreign stock indexes declining around 23% for the quarter. While the Coronavirus has done more damage to the northern hemisphere, it seems that all countries around the globe are experiencing Coronavirus cases and are expected to be affected. Statistics out of China, where the virus began, suggest that China is bouncing back economically after shutting down. They report that 95% of their factories have reopened. While some analysts feel that Chinese authorities are exaggerating their numbers, Starbucks CEO was on record saying “China is on the uptick” and that most of their stores had reopened including some in Wuhan China where the virus originated. This gives the U.S. and Europe hope if they are on a similar path to normalcy in the next few months.


While the Dow Jones gets all the press, unique events took place in bond markets in the first quarter. The key 10-year Treasury hit an all-time low with a yield of 0.318% before rising back up to 0.68% by quarter-end. The 30-year treasury paid a yield of a mere 1.34%. Short-term yields were even more interesting paying a negative yield at one point as investors shifted to very safe assets despite the lack of a positive yield. Corporate and high yield bonds experienced a liquidity crunch placing pressure on bond mutual funds, many of which were down over 10% for the quarter. With the Fed now standing as a ready buyer for many bond sellers, the liquidity risk should be minimal for high-quality bonds moving forward.

Oil Prices

Oil prices plummeted for the quarter with a price war ensuing between Russia and Saudi Arabia who is the world’s largest oil producer. The lack of demand for oil while we curtail travel could create a long road to recovery for much of the energy sector. Shale oil drillers, in particular, will have trouble staying in business if oil prices are to remain this low for months.



Government Stimulus

On March 23rd the government passed the CARES Act (Coronavirus, Aid, Relief, and Economic Security Act) making it the largest federal stimulus ever topping $2 trillion. News of the bill sent stocks soaring with the Dow Jones actually rising out of bear market territory by briefly rallying 20% although we have seen stocks retreat since. This bill represents over 10% of annual GDP for the U.S. It is possible that another round of stimulus is still needed but seeing both Democrats and Republicans quickly agree on a bill proved our government could still work efficiently. Additionally, it seems that the vast majority of politicians agree that they need to do what is necessary to support the economy while companies are forced to shut down.

Monetary Stimulus and the Fed

Several quick and drastic moves were made by the Fed this quarter in an attempt to stabilize asset prices. The Federal Reserve made an emergency rate cut March 3rd slashing rates by 50 basis points to a rate range of 1%-1.25%. Next, the Fed cut rates again just 12 days later by 1% through another emergency cut leaving rates effectively 0%. This was the largest emergency rate cut in the Fed’s history. The Fed also took additional steps to attempt to stabilize bond markets. In a series of steps to accomplish this goal, perhaps the largest was the announcement that they would continue their bond purchasing program “in the amounts needed” and even said they would purchase investment-grade bonds from sellers and companies who need buyers to obtain financing. These moves are unprecedented and show the Fed will do everything they can to support the economy and markets as America battles the virus.

Moving Forward

Research from J.P. Morgan forecasts a double-digit contraction in global growth in the first half of the year including a historic decline in output for the second quarter of 2020. They expect the virus to run its course by around June for the U.S. with things recovering through the second half of the year. Encouraging news has come out of China where they are believed to already be experiencing a recovery. Most experts predict the virus to peak in April for the U.S. with market volatility remaining very high for the next few months. If the virus does run its course as we move into the summer months, much of the attention will shift back to politics. An election year could provide more uncertainty towards year-end.

At CRA, we want to continue to be your coach and trusted advisor during this difficult time. We are with you and hope you and your family remains safe as we all work to get through this.

Tom Reynolds, CPA & Matt Reynolds CPA, CFP®
Gordon Shearer Jr., CFP®
Robert T. Martin, CFA, CFP®
Jeff Hilliard, CFP®, CRPC
Francis C. Thomas CPA, PFS
Joseph McCaffrey

(This article is for informational and educational purposes only and should not be relied upon as the basis for an investment decision. Consult your financial adviser, as well as your tax and/or legal advisers, regarding your personal circumstances before making investment decisions.)