Industries across the U.S. were forced to reduce capacity or close due to social distancing policies carried out to reduce the spread of the coronavirus. As a result, the longest U.S. expansion on record is over and the U.S. market (S&P 500) experienced its worst quarterly performance since the fourth quarter of 2008.
Both international and emerging market (EM) countries continue to face challenges. The social distancing measures enacted across most nations resulted in losses in international and EM equities that have been unseen in over a decade. Like the U.S., many of these countries have enacted economic relief plans for both businesses and individuals.
Core bonds performed well as the Fed cut interest rates to zero and implemented aggressive expansionary monetary policies to combat the negative market effects from the coronavirus. While interest rate volatility was extremely high, the best performing fixed income sector was long term Treasurys, as the 10-year moved from 1.9% to 0.7% during the quarter.
Corporate credit sold off along with other risk assets during the quarter. Both investment grade and high yield experienced significant spread widening on the back of higher default expectations and market liquidity concerns. High yield energy debt experienced a meaningful drawdown as the oil price war between Russia and Saudi Arabia put U.S. energy companies in a precarious position. EM debt denominated in local currency also performed poorly as demand for U.S. dollars skyrocketed.
Tensions between Russia and Saudi Arabia along with a demand shock from the coronavirus resulted in a precipitous decline in oil prices. While the duration of the ongoing oil price war is uncertain, energy producers cannot generate a profit if oil prices are $30 or below.
To view the first quarter reports, click on the links below: