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Astoria Strategic Wealth

Financial Markets - A Recap of the First Quarter of 2020

Executive Summary


  • The Coronavirus outbreak has devastated economic activity globally and left most of the world at a stand-still.  As of April 5, 2020, cases have surpassed 1.2 million and the death toll has exceeded 68,000 globally. The U.S. has the most confirmed cases amounting to over 331,000 with the number of deaths beyond 10,000 as of this writing. Despite U.S. efforts to mitigate the spread of the pandemic, models released by the White House on March 31, 2020 estimate that American deaths may reach 100,000 to 240,000.


  • The unemployment rate in the U.S. has increased from a 50-year low of 3.53% as of December 31, 2019 to 4.4% as of March 31, 2020. There have been 6.6 million Americans who have filed for unemployment claims as of March 28, 2020.


  • The U.S. Federal Reserve has responded by implementing stimulus packages to combat the consequences attributed to the pandemic. In the month of March, two emergency interest rate cuts were delivered, leaving overnight interest rates near 0%. The U.S. Federal Reserve also expanded its balance sheet in record time.


  • To provide further cushion, Congress passed the $2.2 trillion C.A.R.E.S. (Coronavirus Aid, Relief and Economic Security) Act, the largest financial relief package in U.S. history. The package consists of payments to individuals and families, provides $50 billion in loans and grants to struggling domestic airlines, and offers $350 billion in government-guaranteed forgivable loans to businesses with 500 or less employees through the SBA’s (Small Business Administration) Paycheck Protection Program.


  • Despite the abundance of stimulus, markets have experienced vast degrees of volatility. The Chicago Board Options Exchange Volatility (VIX) Index reached an all-time high of 82.69 on March 16, 2020. Additionally, market circuit breakers have been triggered a handful of times in the first quarter, causing trading to come to a halt (on the up and down side).


  • The S&P 500 Index decreased by 19.60% on a total return basis in the first quarter.  The index also had its quickest 30% sell-off in history, taking only 22 days from its February 19, 2020 peak. This compares to historical 30% selloffs which took 23 days in 1934, 24 days in 1931, and 31 days in 1929.  Furthermore, it only took 3 days for the S&P 500 Index to rally 17.57% between March 23, 2020 to March 26, 2020.  


  • As you know, we do not try to time the market and we advocate a globally diversified portfolio across stocks and bonds.  We believe, now more than ever, sticking with a long-term investing plan will increase the changes of accomplishing one’s financial goals.


U.S. Federal Reserve


  • As mentioned, the U.S. Federal Reserve delivered two emergency interest rate cuts in the first quarter. On March 3, 2020, interest rates were lowered 50 bps (or 0.50%) to the 1-1.25% range. This was followed by a 100 bps (or 1.00%) reduction to the 0-0.25% range on March 15, 2020.  The U.S. Federal Reserve suggested it will keep interest rates at this level until the U.S. economy returns to a stable state.


  • Additionally, in order to provide further stability to capital markets, the U.S. Federal Reserve announced it would increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. For the first time ever, the U.S. Federal Reserve will also purchase corporate bonds in an effort to further stabilize the dislocations in the fixed income market.  As shown in the chart below, the U.S. Federal Reserve has expanded its balance sheet by $586 billion in five business days, surpassing $5.25 trillion as of March 25, 2020.


Economic Data, Valuations, and Portfolio Construction


  • The J.P. Morgan Global Manufacturing Purchase Managers Index, which is a measure of economic health for the manufacturing and service sector, saw a steep decline in the first quarter. The index hit a multi-year low of 47.1% on February 29, 2020


  • As a result of the stay-at-home orders attributed to the Coronavirus, U.S. unemployment claims increased drastically in 2020. As of March 28, 2020, the U.S. Department of labor recorded that 6.6 million Americans filed for unemployment, which doubled the prior week’s reading of 3.3 million.



International Equities


  • International Developed and Emerging Markets equities posted a range of negative returns in the first quarter.  The Shanghai Stock Exchange Composite Index (China) decreased by 9.53% (in CNY terms), the Nikkei 225 Index (Japan) declined 19.29% (in Japanese Yen terms), the MSCI Emerging Markets Index was down 23.85% (in USD terms), and the Euro STOXX 50 Index (Europe) fell by 25.33% (in Euro terms).


Fixed Income


  • Bond yields have fallen to historically low levels.  As of March 31, 2020, yields on the 2-year, 10-year, and 30-year U.S. Treasury Bonds were 0.25%, 0.67%, and 1.32% respectively.  For comparison, yields on the 2-year, 10-year, and 30-year U.S. Treasury Bonds were 1.57%, 1.92%, and 2.39% respectively as of the end of 2019.


  • The Bloomberg Barclays U.S. Aggregate Bond Index is up 3.15% on a total return basis thus far in 2020.  We include bonds in all of our portfolios to help provide a dampening effect during periods where stocks decline.


  • We continue to prefer owning higher-quality U.S. bonds across our ETF portfolios.  We maintain an overweight position in U.S. municipal bonds and U.S. mortgage-backed securities, both of which are highly rated.  Over 75% of our fixed-income bonds in our portfolios are rated either AAA or AA. 




  • Commodities posted mostly negative returns thus far in 2020.  The SPDR Gold ETF (GLD) rose by 3.60% while the Invesco DB Agriculture ETF (DBA) declined by 15.04%, the Invesco DB Base Metals ETF (DBB) fell by 17.34%, and the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB), which is a broad-based index of energy, oil, metals, and agriculture, was down 23.41%.  It is worth noting that the United States Oil ETF (USO) decreased by 67.14% as the price of crude oil substantially declined in the aftermath of an oil price war between Saudi Arabia and Russia.