Can we help you find something?

Key Takeaways & Insights

The global spread of the COVID-19 virus was the catalyst for the worst quarter of equity performance since the great financial crisis of 2008. Get more insights in our April Market Outlook.


  • Analysts are waiting for guidance from corporations as to how far revenues, margins, and earnings will fall due to the mobility restrictions. We’re anticipating a roughly 25% decline in S&P 500 operating earnings. If this holds true, the market may be close to bottoming as equity prices have already fallen by a similar amount. That said, finding the true bottom will likely entail a testing of recent lows and continued volatility until there’s a meaningful slowdown in the spread of the virus.
  • The sharp and sudden recession has driven bond yields down across the curve. The Fed’s actions did resolve the yield curve inversion, which could be a potential economic light at the end of this dark, virus-driven tunnel. While the Fed would prefer not to reduce rates below zero, the demand for longer-term maturities could drive bond yields lower as the economy weakens through the second quarter. The massive supply of Treasurys that will be issued to finance fiscal policy initiatives may help offset these lower yields.
  • The Federal Reserve is all-in on providing liquidity to the markets. In addition to resurrecting quantitative easing through the purchase of Treasury and mortgage-backed securities (MBS), the bank dusted off some of the programs used in the 2008-2009 financial crisis to combat recent spread widening in the commercial paper, MBS, and asset-backed securities markets. The Fed also targeted relief to money market funds and the short-term municipal bond market. While there may still be unforeseen pressure points, this aggressive and proactive monetary policy is having a near term calming effect.

First Quarter Recap

First Quarter 2020: The Worst Equity Performance in 12 Years

The global spread of the COVID-19 virus, which originated in China at the end of 2019, was the catalyst for an unprecedented global economic decline and the worst quarter of equity performance since the great financial crisis of 2008. To further emphasize the magnitude, it was the fifth-worst quarter in the last 75 years. Small and mid-capitalization U.S. equities and international equities fared even worse as quarantines and mobility restrictions led to closures and dramatically reduced demand in many industries, especially leisure, hospitality and travel. By no means was the carnage limited to those sectors, eventually the closures and restrictions were imposed on all non-essential manufacturing facilities. The immediate impact of these mobility policies was the end of the longest economic expansion and the longest bull market in U.S. history. Asset price declines were not limited to the equity markets. Both investment-grade and high-yield corporate bonds saw substantial price declines in March as investors adjusted to the oncoming recession.

Besides Treasury notes, there were very few safe havens amidst the market storm. The dollar outperformed most other currencies despite the aggressive Fed ease. Investors tend to repatriate their assets in a crisis, and dollar-based investors dominate the roster of market participants. Gold, another beneficiary of Fed easing, generated a positive return for the quarter. This commodity tends to benefit when central banks flood the market with newly printed currency.

Focus now shifts to second quarter as investors and analysts alike brace themselves for weak economic reports and continued volatility.

Key Market Drivers

Coronavirus Brings Economic Growth to a Standstill

The coronavirus pandemic has brought global economies to their knees over the past month. All eyes are focused on the Asian economies, especially China, as they begin reopening their societies and resuming production. Not surprisingly, these countries are expected to report a sharp decline in first-quarter GDP growth later this month. Any notable rebound in emerging market economies isn’t likely to occur until fourth quarter at the earliest now that the virus has taken hold in developed countries. Exports to developed markets are a key component of many emerging market economies. Here in the U.S., mobility restrictions didn’t begin in earnest until mid-March. So, first-quarter GDP growth is expected to hover around 0%, followed by a much steeper decline in the second quarter. We are currently forecasting a “U-shaped” recovery, which would imply continued economic weakness in the third quarter before a notable rebound in the fourth quarter. As European economies were already teetering on the brink of recession before the virus, their recessions may be deeper and longer-lasting, especially in Italy and Spain. Aggressive fiscal and monetary policy responses are especially important in these countries to support individuals and businesses.

U.S. Fiscal Policy Eases Some Concerns

While monetary policy is essential for providing liquidity to the financial system, fiscal policy is key for supporting displaced workers and preventing mass business closures and bankruptcies in our current environment. After two relatively small stopgap initiatives, Congress passed a $2.2 trillion relief package targeted to individuals, hospitals, small businesses, and corporations. A fourth fiscal relief package will probably only happen if it becomes apparent more government assistance is needed.

What This Means for Investors

Over the coming months, the spread of the virus and the duration of the resulting mobility restrictions will be the most significant drivers of market sentiment. China’s experience in reopening its economy, and hopefully, not seeing a recurrence of the virus may help inform the timing of a return to some sense of normalcy in developed markets.

Meet the Author

Ben Pace

Partner & Chief Investment Officer

Ben is the Chief Investment Officer and a Partner in the New York office. He leads the firm’s Investment Committee and is a member of the Executive Committee. He has more than thirty-five years of experience in investment management. Ben has been featured in the Wall Street Journal and Reuters, and is a frequent commentator on Bloomberg TV and radio, Fox TV and CNBC, appearing regularly on network programs such as Power Lunch, The Closing Bell, Squawk Box, and Worldwide Exchange.

Prior to joining Cerity Partners, Ben was Chief Investment Officer and Head of Global Investment Solutions for Deutsche Bank Private Wealth Management in the U.S. In his role as CIO, he sat on the PWM Global Investment Committee, providing input on the U.S. economy and capital markets. He oversaw the investment strategy and asset allocation for PWM clients in the U.S. As Head of Global Investment Solutions, he brought together PWM’s capital markets and investment capabilities in an effort to provide an effective and consistent experience for clients. Prior to joining Deutsche Bank in 1994, he managed equity income funds for two investment organizations. During his tenure with those institutions, he also served as a securities analyst with a particular emphasis on the financial services and healthcare industries.

He earned his Bachelor of Arts in economics from Columbia University and Master of Business Administration in finance from New York University.

Connect with Ben

Sign Up for Market & Economic Outlooks

Get the latest insights and analysis from our investment team delivered right to your inbox.