U.S. Versus International
Stock markets continue to reel from the impact of the coronavirus pandemic. Risks were high coming into 2020 as stock markets extended the longest bull run in history. However, economic activity remained strong and there was no end in sight for consumer spending. Until the coronavirus hit, no one could have predicted a pandemic of this global breadth and magnitude hitting in the first quarter. Uncertainty regarding the actual economic impact continues to be high and will likely weigh on markets during April.
Despite China being the epicenter of the coronavirus outbreak ,the Shanghai Composite Index was the best performing international index in local currency terms, falling 9.8% or approximately half of the S&P 500 decline. The Chinese stock index posted the largest number of Initial Public Offerings (IPOs) of any global index in the first quarter. The Financial Times reported items that contributed to higher IPOs included the prospect of pent-up demand in the Chinese market, along with strong policy support from Beijing. The prospect of improving health conditions prior to the end of the quarter also helped alleviate uncertainty regarding the length of the impact from the virus.
U.S. Sectors
Investors sought out companies that could hold up better during this trying time. Many technology companies are benefiting from the surge in remote workers, as well as students learning at home. The health care industry is also experiencing a surge in demand from the crisis. Time will tell who the true winners and losers are during this economic shift.
Energy companies were faced with a double whammy. Social distancing has essentially shutdown travel, which is a large consumer of energy resources. Additionally, a fight for market share ensued between Russia and Saudi Arabia. The Saudi government refused to go along with OPEC countries to lower supply. They are trying to shore up oil revenue by capturing additional market share. Oil prices for West Texas Intermediate Crude Oil (WTI) fell to almost $20 per barrel, a price not seen for over 20 years. WTI dropped below $20 per barrel in 1998, when OPEC countries also couldn’t agree on the proper amount of oil supplies. Prior to 1998 we hadn’t seen WTI below $20 since the 1940s! Sharp drops in oil prices have historically been very short lived, with a sharp and fast recovery.