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March 2020
National Non-Operating Observations
The Bureau of Economic Analysis provided its “second estimate” for fourth-quarter U.S. Gross Domestic Product (GDP) growth, reaffirming January’s 2.1 percent estimate. Overall GDP growth in 2019 was 2.3 percent, below 2018’s 2.9 percent increase and 2017’s 2.4 percent growth. The reaffirmed estimate still falls below the White House’s 3 percent target.
Total nonfarm payroll employment added an impressive 273,000 jobs in February—including nearly 183,000 from U.S. private labor markets—bringing unemployment to a 50-year low of 3.5 percent, down from 3.6 percent in January. Healthcare continued to boost employment, adding 32,000 jobs in February, of which hospitals contributed 8,000.
February was marked by volatility and uncertainty for Wall Street. Equities began the month on strong footing, with the S&P 500 continuing its all-time highs. The unprecedented bull run quickly came to a halt due to mounting concerns as COVID-19 rapidly spread beyond China to epicenters like South Korea, Italy, and the U.S. Within 10 days, the S&P 500 plummeted nearly 13 percent, wiping away nearly all the prior six months’ gains. Investors closed February on a note of immense uncertainty, with fears that COVID-19 may continue to negatively impact equity markets worldwide.
The extreme volatility and downward movement in global equities persisted into March, as the World Health Organization officially declared COVID-19 a pandemic. The S&P 500 plunged more than 25 percent since the start of 2020, while the MSCI World and MSCI Emerging Markets indices both declined nearly 30 percent. Bearish sentiment led to steep losses throughout global equity markets, as the U.S. exchanges saw multiple limit-down “circuit breakers” take effect to prevent drastic downward movements. The market turbulence eliminated equity gains generated since the start of the Trump Administration, and effectively ended the historic 11-year bull run in the market.
The federal government has taken fiscal and monetary measures to calm widespread panic. The Federal Reserve slashed interest rates to a range of 0-0.25 percent (down from 1-1.25 percent), and instituted a plan to provide a $1.5 trillion injection to “address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”
Congress is working on a potential direct cash infusion to U.S. citizens to ease financial distress. Even so, global economies remain fearful as nations move to contain the virus’ spread through increasingly aggressive measures, such as curfews, business shutdown mandates, and border closures. Global health experts warn the virus may remain rampant for the foreseeable future. Consequently, investors continue to approach the market with extreme caution, and seek haven from volatile investments.
†U.S. Bureau of Economic Analysis, Q4 2019 “Second Estimate”
*As of market close, March 23, 2020
**60/40 Asset Allocation assumes 30% S&P 500 Index, 20% MSCI World Index, 10% MSCI Emerging Markets Index, 40% Barclays US Aggregate Bond Index
Budget Variance
Month Over Month
Year Over Year
March MTD Change*
GDP Growth
Unemployment Rate
(30 bps)
Personal Consumption Expenditures, Y-o-Y
0 bps
0 bps

(15 bps)
(98 bps)
(57 bps)
30yr MMD
(28 bps)
(146 bps)
145 bps
30yr Treasury
(32 bps)
(141 bps)
(32 bps)
60/40 Asset Allocation**
Non-Operating Assets
Fears over COVID-19 spooked investors as February came to a close. The last five days of trading saw the S&P 500 and Dow Jones Industrial Average plunge, wiping out almost $3 trillion in value from American equities. Oil prices fell to $44 a barrel, as Russia remained reluctant to cut production to combat anticipated declines in demand due to the COVID-19 crisis, putting further pressure on financial markets.
The S&P 500 ended February down 8.4 percent after setting record highs earlier in the month on robust economic data and President Trump’s impeachment acquittal. The MSCI World Index finished down 8.6 percent and the MSCI Emerging Markets Index down 4.3 percent, leaving the Blended 60/40 Asset Allocation down 4.06 percent, as the Barclays Aggregate Bond Index climbed 1.8 percent.
March has been even more volatile, as investors continued to seek liquidity by selling assets. At publishing time, the S&P 500 was down 24.3 percent. World indices haven’t fared much better, with the MSCI World Index and MSCI Emerging Markets Index down 22.9 percent and 20.1 percent, respectively. With bond prices taking a massive hit and the Barclays Aggregate Bond Index down 3.6 percent, the Blended 60/40 was down 15.31 percent to start March. Markets await the results of a congressional spending package, as well as the effects of drastic Federal Reserve actions aimed at injecting liquidity in stalling markets.
Long Term
Last Twelve Months
Non-Operating Liabilities
Concerns over the global impacts of COVID-19 dominated markets in February. Investors continued to seek low-risk assets, driving treasury rates down for the second consecutive month to start 2020, as 30-year Treasury bonds fell to 1.68 percent. The 10-year Treasury bond ended February at a record low 1.15 percent. Municipal rates declined even further from historically low levels in January, with 30-year MMD down 28 bps month over month to 1.52 percent. In the short-term markets, 1M LIBOR finished February at 1.52 percent, down 98 bps year over year. The tax-exempt short-term rate SIFMA rose 21 bps to 1.15 percent, but down 46 bps since the start of the year.
Municipal fund flows remained strong in February, with $10.35 billion entering the market as investors failed to predict the havoc COVID-19 would cause on all sectors, from state and local governments, to transportation, education, and hospitals. Municipal bonds continued to be viewed as a safe haven, as investors pulled $19.5 billion from domestic equity funds, maintaining a “risk-off” approach to stock market volatility. Including February, domestic equity funds experienced 13 straight months of outflows, while municipal funds marked 14 straight months of inflows.
However, municipal fund flows have seen a stark reversal as the pandemic’s devastating effects have become clearer to investors, with more than $15 billion of redemptions in March at publishing time. After years of being in lockstep, U.S. Treasury and MMD rates experienced significant dislocation in March, as investors continued to flee municipal securities. 30-year MMD rose 145 bps in March to 2.97 percent, as 30-year U.S. Treasury bond yields fell 32 bps to a historically low 1.35 percent. Short-term municipal markets also destabilized, with SIFMA resetting most recently at 5.20 percent, up 405 bps since the start of the month, while 1M LIBOR fell 57 bps to 0.95 percent.
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets, as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index,” are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply- and demand-sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investment and principal and interest payments on existing and maturing holdings. Strong fund flows generally signal that investors have more cash to put to work, a boon to the demand. Fund inflows generally are moderate and consistent over time, while fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in quick position liquidation, which can drive yields up considerably in a short amount of time.
©2020 Kaufman, Hall & Associates, LLC
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