There is no question that we have witnessed remarkable events over the past month and a half. Equity markets have declined significantly, and more alarmingly, they have done so in extremely rapid fashion. In fact, the recent market contraction is the quickest on record, with an almost 34% decline in under five weeks.
Obviously, this downturn is a result of the uncertainty surrounding the magnitude and duration of the coronavirus affects. Both the known, and more importantly, the unknown effects of the crisis are the main factors amplifying volatility and putting a fair amount of stress on the liquidity of the markets. We are over a month into this this market downturn as the stock market high was February 19th, as measured by the Standard and Poor’s (S&P) 500.
To step back and help provide some perspective on the recent and ongoing events, it may be helpful to categorize the timeline.
We could begin with a phase one, which started prior to the February 19th market high. This period could be characterized by strength in certain safe-haven securities such as US Treasury bonds. We saw these types of securities do well, continuing the behavior demonstrated last year, as returns were strong then too. Additionally, we saw the yield curve (which is a graphical illustration of the different yields on varying maturities of government bonds) compress, as many bond investors sought to reduce risk given not only general fears about the state of markets but specifically relating to the developing concerns regarding the impact of the emerging supply chain disruptions.