Ameriprise Financial : The Story of a Quarter Rocked by a Global Pandemic

The MSCI All Country World index of global equities fell 22 percent in the first quarter. It was the steepest quarterly decline since the end of 2008, in the midst of the financial crisis. The S&P 500^® index fell 20 percent, also its worst decline since the end of 2008. The energy sector suffered the sharpest decline, falling 52 percent as the price of WTI crude oil fell 66 percent in the quarter. Financial stocks were a close second, falling 32 percent. The yield on the ten-year U.S. Treasury note fell from 1.92 to 0.67 percent.

As the spread of the coronavirus gathered momentum throughout the quarter, so too did estimates of its economic impact. In response, the Federal Reserve lowered the overnight interest rate to zero, launched a number of lending facilities, and Congress passed a $2 trillion economic support bill. The second quarter is expected to absorb the brunt of the health and economic effects of the virus, particularly during its first half, as now more than three-quarters of the U.S. population is subject to stay-at-home directives, and 180 countries and regions around the globe have been affected. We expect to see a significant decline in economic activity and a significant rise in unemployment during the quarter.

Swift Actions by Lawmakers and Global Central Banks Have Been Impressive

In a modest sign of progress, the director of the National Institute of Allergy and Infectious Diseases said this week that he is starting to see 'glimmers' in the data that social distancing may be slowing the spread of the virus, while simultaneously warning that the situation remains very dangerous. And the response from Washington in the effort to mitigate the economic impact has so far been impressive, both in terms of its size and speed. And there is talk about what more might need to be done as the economy transitions from stabilization to sustainable growth. The fiscal response overseas among the G20 countries has been impressive as well, amounting to an estimated 6 percent of annual global GDP in total. And major foreign central banks have announced sizeable stimulus programs as well.
As weak as equity markets were in the first quarter, they did manage to mount a rally at quarter-end that lifted stocks 15 percent off their low. However, history tells us that recoveries from bear markets are typically a process that entails periods of advance and retreat. Oftentimes, the major averages revisit their prior lows after enjoying recovery rallies that prove to be unsustainable. Whether stocks will follow that pattern this time around remains to be seen. It should be noted that stocks have experienced weakness for the second straight day on Wednesday, the first day of trading of the second quarter. And volatility has edged higher. But stocks do eventually recover, although it takes time.

U.S. Jobless Claims Reach Another Record High

The U.S. unemployment rate is expected to rise modestly when the March payroll report is released on Friday. But the anticipated rise to 3.8 percent on an expected loss of 100,000 jobs will be completely overlooked as being out of date, given the timing of when the data is compiled during the month, during the week of the 12th.

The weekly jobless claims number has taken on far more significance, given its timeliness. This week's total of 6.6 million follows last week's 3.3 million. Together they imply a rise in the unemployment rate of 6 percent. And it is expected to go higher as the full effects of the economic slowdown are reflected in the monthly data in April and May.

Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Individual securities referenced are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell.

The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees.

MSCI All Country World Index is a market capitalization weighted index, representing 23 developed countries and 24 emerging markets, that gives a broad measure of equity market performance throughout the world.

The S&P 500 Energy Select Sector Index measures the performance of energy stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market capitalization weighted.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index.

A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.

West Texas Intermediate (WTI) is a grade of crude oil commonly used as a benchmark for oil prices. WTI is a light grade with low density and sulfur content.

Past performance is not a guarantee of future results.

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