09/17/2020

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colorful peaks

A Look Back at the First Quarter of the New Decade



Today is April 1, and that means the first quarter of the new decade is officially in the rearview mirror. The month of March alone felt like an entire year, and the last three months threw curveballs that few investors could have expected at the end of 2019.

To that end, on January 1 2020, US stocks were still in the midst of the longest bull market in history . This historic stretch would continue for two and a half more months until the middle of March, when equity indexes had the rug pulled out from under them. This was due to the start of a global pandemic and a geopolitical disagreement that caused an oil price war.

On Tuesday, the final day of the quarter, the Dow Jones ended at 21,917—down 23.2% from the start of the year. The S&P 500 ended yesterday at 2,584, which is 20% lower from where it started 2020. Lastly, the Nasdaq Composite Index clocked in at 7,700 on Tuesday, performing the best of the three over the past months, but still down 14.2% over the quarter.

The government’s massive monetary initiatives and the Fed’s fiscal packages were not enough to save the Dow and S&P 500 from registering their worst Q1 ever . The Dow also registered its worst overall quarter since 1987, and the S&P 500 recorded its biggest quarterly loss since 2008.

Oil’s Worst Quarterly Performance Ever

As stocks staged a volatile descent into the history books, oil decided to follow suit. After a disagreement between commodity-rich heavyweights (Saudi Arabia and Russia) unfolded at the beginning of March, the former decided to flood the market right as the world was waking up to the gravity of the novel coronavirus.

A new reality set in quickly, and across the world governments shut down their economies to prevent the spread of the outbreak. These actions led to the evaporation of demand for oil as planes stayed on the runways, office buildings closed their doors, and people canceled travel plans.

The one-two punch from both the supply and demand side sent oil prices tumbling. On the final day of the quarter, US West Texas Intermediate (WTI) settled at $20.22 per barrel—66% below where it started the year. International benchmark Brent crude traded at $22.71 per barrel, also down more than 64% from where it entered 2020.

The volatility in the equity and oil sectors triggered a flight to safety. Investors opted to sell their positions in the riskier assets and migrate over to “safer” securities like US government bonds. The increase in demand for US government debt caused the 10-year Treasury note to reach a record low of 0.318% at one point during the quarter.

The Federal Reserve’s decision to inject trillions of dollars into the capital markets also added to downward rate pressure. On Tuesday, the 10-year note ended at 0.67%—well below 1.8% where it was sitting at the beginning of the year.

The Quarter of Quarantines

Outside of activity that was directly related to the markets, the first quarter of the year will be remembered for other major cultural and political events.

On January 3, President Donald Trump ordered an airstrike that killed the leader of Iran’s Islamic Revolutionary Guard Corps, Maj. Gen. Qassem Soleimani.

Less than two weeks later, President Trump signed a “Phase One” trade deal with China, attempting to calm tensions that had been boiling as a result of an 18-month trade war.

Kobe Bryant’s death at the end of January shocked the world after the legendary basketball player was killed along with eight others, including his daughter, in a helicopter crash in California.

February got off to a similarly strange start when a technical glitch caused the Iowa caucus results to be delayed and never finalized by the Associated Press. The same month ended with China attempting to get back to work after quarantines related to the coronavirus.

Ultimately, the outbreak began reaching other parts of the world in March and President Donald Trump announced the US would halt travel from Europe on March 11. In the following weeks, other countries would implement similar restrictions. As of Tuesday, 20% of the global population was living under a lockdown.

Let’s hope for a more uplifting second quarter of the year!


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