InvestNow News – 13th Mar 20 – Harbour – Short term uncertainty reigns
9 Mar 20
Key points
- The spread of COVID-19 outside of China dented sentiment during February, causing global interest rates and equity prices to fall sharply.
- US political risk was elevated during the month, as polling and early primary results saw Bernie Sanders emerge as the frontrunner in the race to become the Democratic candidate for the US Presidency. He since has dropped to a clear second favourite, behind Joe Biden. Sanders is not considered a “market friendly” candidate due to his views on (anti) trade, plans to break up big tech and unconventional views on monetary policy.
- The US earnings season saw 491 companies report. 359 companies (73%) delivered earnings in excess of consensus estimates, with the best performing sectors being technology where 94% of companies beat expectations. The sectors which performed poorest were telecommunications (50% beat rate), and oil and gas (44% beat rate).
- In New Zealand, the December company reporting season was weaker than expected with more misses against expectations in results, versus beats. Company outlook statements were cautious. Consensus earnings forecast downgrades exceeded upgrades.
Key developments
February was a volatile month for investment markets. Optimism generated from a positive US earnings season in early February, soon gave way to fear as the spread of COVID-19 left markets pondering just how large the impact of this virus could be on economic activity and company earnings. This saw the MSCI World Index down 8.2% over the month (in local currency) after being up 4.0% on the 12th of February. In fixed income markets, the tone was entirely driven by the spread of COVID-19. Late in the month, when almost simultaneous outbreaks occurred in South Korea, Iran and Italy, bond markets anticipated a tougher economic outlook and the need for rate cuts. Bonds rallied, with US Treasury yields reaching record low levels, and credit spreads widened.