First Quarter 2020: The End of the Bull Market
The longest bull market in U.S. history peaked in February before swiftly falling into bear market territory, as COVID-19’s impact, along with an oil price war, were felt across the globe. In what is never a good sign of the times, market observers were forced to reference the Great Depression and 2008 global financial crisis in order to find comparisons not only for the market volatility, but also for the swiftness of the decline. The S&P 500 Index declined 34% between its all-time high on February 19th and the quarter’s low, set 33 days later on March 23rd. All in, the S&P 500 ended down almost 20% for the quarter, the sixth-largest quarterly decline since 1927 and the worst since 2008.
Market volatility was persistent during the asset sell-off as investors sold anything with a hint of risk once it became clear that the global economy would be skidding to an unprecedented hard stop for the immediate future. The Federal Reserve moved quickly to provide liquidity and funding support, dusting off a wide range of tools last seen during the tumultuous days during the 2008 financial crisis. Congress acted as well, passing a $2.2 trillion dollar rescue package – nearly three times as large as 2008’s – in the final days of March.
Against this backdrop, bonds either protected or disappointed, depending on their day-to-day liquidity and credit quality. US Treasury yields fell to historic lows as investors sought the safety of US Treasury bonds, which rose by more than 8%. Long bonds, most sensitive to rate changes, performed the best. Anything with risk, meanwhile, declined: high-quality corporate bonds declined by nearly 4%, and high-yield and emerging markets bonds, among the riskiest sectors of the bond market, declined by 13-14%.