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Charting Through the Coronavirus Crisis with Ben Carlson

Ben Carlson, Director of Institutional Asset Management at Ritholtz Wealth Management and co-host of the extremely popular Animal Spirits podcast joined YCharts to break down charts and other visuals that explain how coronavirus is impacting global economies, the stock and bond markets and investors around the world.

With Caleb Eplett, VP of Product Management at YCharts, Ben discusses nearly 20 charts and covers topics including volatility, portfolios and diversification, the industries most affected by coronavirus and more. Watch the video below to hear from Ben and Caleb, or see the charts and written commentary below.

All visuals are linked to YCharts and most can be downloaded as a .png file for sharing with your clients, colleagues and network. Our recent blog posts also provide more resources for communicating with clients during the coronavirus crisis and a bear market.

 

 

The Global Impact of Coronavirus (COVID-19) on Markets:

Because of the Coronavirus, US equities markets ended their longest bull run ever. The S&P 500 has been off its all-time-high by as much as 30% this year. Here’s a closer look at impact on global and domestic markets.

Coronavirus Cases and Global Market Decline:

The chart below shows that China was the only contributing company to world coronavirus cases until the end of February 2020. At their worst, global markets were down about 33%. An optimistic view could be that estimates for coronavirus cases and deaths are already priced into the market, whereas a pessimistic view might say that things will get even worse before getting better, and the recent rally is only a “dead cat bounce.”

coronavirus cases and global marketsClick to view in YCharts

Countries with the most Coronavirus Cases:

Italy, arguably the population hit the hardest thus far, was down almost 39% at its trough. The United States, with more total confirmed cases than any other country, was down 34% but has rallied faster than other major world economies. China, whose self-reporting has been called into question lately, has outperformed other countries since mid-March.

countries with most coronavirus casesClick to view in YCharts

S&P Dividend Yield at 10-Year Highs:

The dividend yield on S&P 500-tracking SPY is about four times the yield currently offered by a 10 year treasury bond. Looking into the future, how does buying and holding SPY for 10 years compare to US Treasuries? The high dividend yield is a product of lower prices, but are dividends themselves sustainable going forward?

s&p 500 dividend yield 10 year highClick to view in YCharts

Median P/E Ratio of S&P 500 Companies:

Going back to 1999, the median PE Ratio of S&P 500 companies averages just over 20. Currently around 16.3, the median PE is still about 30% higher than levels seen in 2008. As corporate earnings kick off in April, investors should look at the degree to which companies have already been affected by the ongoing coronavirus crisis. Low PE ratios, combined with high dividend yields shown above, could be attractive to long term value investors.

s&p 500 pe ratio coronavirusCreated using YCharts Timeseries Analysis. Learn more here.

Industry Groups Most Affected:

People are currently living through truly unique and unprecedented times. Most of us have paused our daily habits to practice social distancing, and the companies or stores we usually patron are feeling the effects. Some industries and sectors have felt that pain more than others, and it’s raising legitimate questions about the survival of companies within them.

S&P 500 Sector Performance Since Trump Took Office:

Under President Trump, Technology, Health Care and Utilities have been the best performing sectors. Energy, dealing with decreased demand from coronavirus and increased supply from OPEC infighting, has dragged the broader market considerably.

sectors since trump took office coronavirusClick to view in YCharts

The BEACH Stocks:

The BEACH stocks—that’s booking, entertainment, airlines, cruise lines, and hotels—have taken a serious hit since coronavirus’ spread has mounted. The aggregated BEACH portfolio (in purple below) is down more than two-times the S&P 500 since the latter’s last all-time-high on February 19th.

beach stocks coronavirusbeach stocks coronavirusCreated using YCharts Model Portfolios. Click here to learn more.

Portfolio of Oil & Gas Companies vs. Crude Oil:

Back on oil and gas, benchmark Brent Crude Oil spent all of 2019 trying to recover from a sell-off in Q4 2018. A portfolio of Oil & Gas companies, charted below, would have followed oil’s price drop straight to the floor. Will global demand for oil ever recover? And if not, can energy companies be profitable when the commodity is so inexpensive?

oil and gas coronavirusCreated using YCharts Model Portfolios. Click here to learn more.

Race for the COVID-19 Vaccine:

There’s some good news in the market too though.  Several healthcare companies have sparkled as they’ve made news for breakthroughs in the last several weeks. Ben Carlson notes how investing in biotech takes another breed of investor, but could we see one of these companies jump again on news of vaccine approval?

race for covid-19 vaccine coronavirusClick to view in YCharts

US Jobless Claims:

Not only have the stock prices of companies been hugely impacted, but the people working for them have been put-out as well. Clearly visible below, this is the largest spike in initial jobless claims on record. The United States has enjoyed record-low unemployment as of late, but a sustained recession would leave millions out of work.

jobless claims unemployment coronavirusClick to view in YCharts

Bond Markets:

Yields on fixed income products have been interesting lately. The Fed had two surprise rate cuts which brought target rates down to a range of 0.00 – 0.25% and short term yields— namely the 1 month and 3 month treasury bills—went negative for the first time ever. The Fed also announced an “unlimited spending” program to help prop up the bond market with much-needed liquidity.

After 3 Years of Hikes, Fed Funds Rate Back to Zero:

The left and right halves of this chart tell the story of the Fed’s 2017 administration change. Unlike the more tempered approach to the 2008 financial crisis, the Fed responded to coronavirus with two emergency rate cuts.

fed funds rate coronavirusClick to view in YCharts

Abnormal Bond Volatility:

An asset class typically known for capital preservation, not growth, long-term treasuries have appreciated more than 25% year-to-date. Similarly, US treasuries are known for their stability, but volatility has creeped into the bond market as well. Investors holding bonds are undoubtedly thankful for the downside protection they’ve provided, but have bond funds become more risky at these new levels?

bond volatility coronavirusClick to view in YCharts

Spreads Widening Quickly:

As rates hover at all-time lows, the premiums that businesses (especially those with lower credit ratings) must pay bond issuers are nearing 10-year highs. With spreads between riskier bonds and treasuries widening quickly, what does this indicate for the well-being of small businesses?

yield spreads widening coronavirusClick to view in YCharts

Mortgage Rates Stagnate:

Although it’s true that 30-year mortgage rates are typically based on 30-Year Treasury Rates, the former hasn’t moved quite as low as the latter. That’s because the rush by individuals to refinance at low rates has increased demand to the point that lenders really don’t need to adjust the rates of their offering.

30 year mortgage rates coronavirusClick to view in YCharts

Volatility:

So far in 2020, the Cboe S&P 500 Volatility Index (VIX) set a new high watermark above 80 and set its longest streak of consecutive closes above 60. Investors have seen similar amounts of volatility before, but the major indexes are seeing some of the largest single day swings ever recorded.

1987 vs. 2008 vs. 2020:

This chart plots the daily percent change of  the S&P 500 during the current year, as well as 1987 and 2008. In past recessionary periods, volatility has calmed down after about 30 days or so. Will the same happen in 2020?

1987 2008 2020 recession coronavirusCreated using the YCharts Excel Add-in. Click here to learn more.

More Big Daily Moves:

Indexed ETFs have posted single-day returns as high as 11%, and losses of more than 12%. So many consecutive days of record market rallies and sell-offs have not instilled confidence in investors, and Ben Carlson pointed out that these jerky swings could likely be a result of that uncertain outlook.

volatility QQQ SPY DIA coronavirusClick here to view in YCharts

Trillion Dollar Companies Have Lost a Combined $1.2T in Market Cap:

At the market’s height, Apple (AAPL), Amazon (AMZN), Microsoft (MSFT) and Google (GOOGL) all had individual market caps above $1 trillion and combined for $4.7 trillion in total. That number dropped by more than $1.2T during the Coronavirus crisis. To put this into perspective, the Federal Government released a stimulus package totaling $2T for the whole nation.

trillion dollar companies coronavirusCreated using the YCharts Excel Add-in. Click here to learn more.

Portfolios and Diversification:

Because of the Coronavirus, US equities markets ended their longest bull run ever. The S&P 500 has been off its all-time-high by as much as 30% this year. Here’s a closer look at impact on global and domestic markets.

The Power of Diversification

Sure, the market has come down over 30% since the coronavirus crisis began, but a properly diversified portfolio should stand up to that. A 50/50 allocation has given up about 12% since the last market highs—that’s not easy to stomach, but definitely not as bad as a 30% loss. A diversified portfolio allows you to stay afloat during times like these.

power of diversification coronavirusCreated using YCharts Model Portfolios. Click here to learn more.

Coronavirus Cases and Global Market Decline:

The chart below shows portfolio drift—how far actual allocations shift from their targets between rebalancing—for three common portfolio types. Note how the drift moves to 0 at the start of January 2020, when rebalancing occurred. In Q1 2020, a balanced model moved nearly 10% off its allocation targets, leaving investors over-exposed or under-exposed.

portfolio risk coronavirusCreated using YCharts Model Portfolios. Click here to learn more.

 

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