February was an historically volatile month for investors. Economic growth and corporate profit trends did not show evidence of a rebound. Instead, we observed more evidence that household financial conditions are tightening despite steady consumption trends on the heels of falling savings rates and rising borrowing trends.
The S&P 500 Index rose 5.0 percent during the first 19 days of the month, reached an all-time high of 3,386 points and then fell 12.8 percent on fears the coronavirus outbreak may disrupt global growth more than previously expected. The violent sell-off thrust the CBOE VIX Index (VIX) to 40.1, a daily level among the highest 97.8 percent of daily observations since the VIX was introduced in January 1990, provoking indiscriminate selling of risk-seeking assets. For the month, the index fell 8.2 percent but held up better than international indices.
Despite the U.S. market correction, defined as a peak-to-trough decline of more than 10 percent, but less than 20 percent, growth stocks continued to outperform value-orientated strategies and large-cap stocks again fared better than small-caps.
Mounting concerns that the coronavirus outbreak would intensify the slowdown in business activity weighed on energy and industrial commodity sector-sensitive asset classes. West Texas Intermediate (WTI) oil prices slid 13.2 percent in February. Despite the sharp fall in nominal yields, historically a positive for U.S. REITs, the asset class fell 8.0 percent.
Taking stock of portfolio risk and allocations can be difficult during market volatility. Our behavioral biases tend to vacillate between fear and greed, with ample doses of hope, and we can feel tempted to deviate from a predetermined investment strategy. During these periods, we remind investors that periods of elevated volatility results in both higher and lower market fluctuations. Amid this backdrop of elevated volatility and late-cycle dynamics, we will continue to monitor financial market conditions and track the data surrounding Covid-19.
We continue to believe that investors should be patient and adhere to a well-constructed, diversified investment portfolio anchored to your goals and time horizon.
Notes: The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.