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Global markets performed awfully last month due to the rapid spread of coronavirus across the globe. While China — the epicentre of the outbreak — has been reporting new cases at a slower pace, the virus is spreading faster in countries like South Korea, Italy and Iran. WHO has warned that the outbreak has “pandemic potential” as the virus has now entered 65 nations. The United States, Australia and Thailand also reported fatalities.
Though Wall Street scaled new highs at the start of the month (ignoring the virus scare that was limited to China and allied areas then), the fear factor spiked in the final days of February. Last week was the worst since October 2008 for the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite, all of which plunged more than 10% amid the coronavirus panic.
Overall, the S&P 500-based (SPY - Free Report) , the Dow Jones-based (DIA - Free Report) and the Nasdaq 100-based (QQQ - Free Report) lost about 9.4%, 11.2% and 7.1% last month. Let’s take a look at the key ETF headlines of the month.
After all, the Bank of America commented that the global economy is on its way for its weakest year since the 2008 financial crisis due to increased lockdowns, restrictions on global travel and lower manufacturing activity in China. Earlier, Goldman Sachs had slashed its outlook for U.S. companies’ earnings growth to zero.
Apple and Microsoft’s guidance cuts put Select Sector SPDR Technology ETF (XLK - Free Report) and iShares U.S. Technology ETF IYWin a tight spot. PayPal-heavy ETFs like Global X FinTech ETF FINX may also come under pressure.
Bets for Central Bank Easing Rise, Treasury Yields at Record Low
Now that the coronavirus fears have gripped global markets, investors expect the Fed to cut rates. Apart from the Fed, several other central banks (like Australia and Japan) may pursue policy easing.
A safe-haven rally and increased bets on an imminent Fed rate cut dragged down the benchmark U.S. treasury yield to an all-time low of 1.30% on Feb 28. PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded FundZROZ, Vanguard Extended Duration Treasury Index Fund ETF SharesEDV and iShares 20+ Year Treasury Bond ETF (TLT - Free Report) added in the range of 8.7% to 12.6%.
Despite the virus fear, China ETFs put up a great show in February with KraneShares MSCI All China Health Care Index ETF KURE gaining the most (up 11.9%), followed by Xtrackers Harvest CSI 500 China-A Shares Small Cap Fund ASHS (up 9.9%) and iShares MSCI China A ETFCNYA (up 9.6%). The phase-one U.S.-China trade deal and the rollout of Chinese stimulus may probably have led to the upside.
According to a Vanho Securities report, China's likely policy support could beat market expectations as “the country needs to grow at a faster pace in the second half to achieve decent full-year growth after the virus outbreak in the first half.”
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Top ETF Stories of Virus-Infected February
Global markets performed awfully last month due to the rapid spread of coronavirus across the globe. While China — the epicentre of the outbreak — has been reporting new cases at a slower pace, the virus is spreading faster in countries like South Korea, Italy and Iran. WHO has warned that the outbreak has “pandemic potential” as the virus has now entered 65 nations. The United States, Australia and Thailand also reported fatalities.
Though Wall Street scaled new highs at the start of the month (ignoring the virus scare that was limited to China and allied areas then), the fear factor spiked in the final days of February. Last week was the worst since October 2008 for the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite, all of which plunged more than 10% amid the coronavirus panic.
Overall, the S&P 500-based (SPY - Free Report) , the Dow Jones-based (DIA - Free Report) and the Nasdaq 100-based (QQQ - Free Report) lost about 9.4%, 11.2% and 7.1% last month. Let’s take a look at the key ETF headlines of the month.
Wall Street in Correction
Severe global market selloffs landed Wall Street in the correction territory last week. The S&P 500 witnessed the fastest correction and the Dow Jones saw its worst single-day slump in history (read: Wall Street in Correction: 4 Sector ETFs Unscathed in February).
After all, the Bank of America commented that the global economy is on its way for its weakest year since the 2008 financial crisis due to increased lockdowns, restrictions on global travel and lower manufacturing activity in China. Earlier, Goldman Sachs had slashed its outlook for U.S. companies’ earnings growth to zero.
Guidance Cut by Several Big Companies
Several Wall Street biggies lowered their revenue guidance for the ongoing quarter to address the coronavirus panic. Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) and PayPal (PYPL - Free Report) are among the companies that have already slashed the revenue guidance (read: Microsoft Revises Sales Guidance on Coronavirus: ETFs in Focus).
Apple and Microsoft’s guidance cuts put Select Sector SPDR Technology ETF (XLK - Free Report) and iShares U.S. Technology ETF IYW in a tight spot. PayPal-heavy ETFs like Global X FinTech ETF FINX may also come under pressure.
Bets for Central Bank Easing Rise, Treasury Yields at Record Low
Now that the coronavirus fears have gripped global markets, investors expect the Fed to cut rates. Apart from the Fed, several other central banks (like Australia and Japan) may pursue policy easing.
At the current level, according to CME FedWatch tool, there is a 100% probability of monetary policy easing by 50 bps in the Fed’s mid-March meeting (read: "At Least 3 Rate Cuts" by December? Sector ETFs to Play).
A safe-haven rally and increased bets on an imminent Fed rate cut dragged down the benchmark U.S. treasury yield to an all-time low of 1.30% on Feb 28. PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund ZROZ, Vanguard Extended Duration Treasury Index Fund ETF Shares EDV and iShares 20+ Year Treasury Bond ETF (TLT - Free Report) added in the range of 8.7% to 12.6%.
Solar ETF Stood Steady Amid the Selloff
Upbeat earnings from Enphase Energy Inc. (ENPH - Free Report) and SolarEdge Technologies Inc. (SEDG - Free Report) and Tesla’s (TSLA - Free Report) optimistic solar plan boosted Invesco Solar ETF (TAN - Free Report) . The fund has gained 11.4% in the past month (read: Can Solar ETF Retain its Rally Despite Mixed Earnings?).
Investors should note that a transition toward 100% clean electricity is in process in the United States. China is a major player building a green environment. Almost half of the European Union’s (EU) 28 member states have already reached or are about to touch their 2020 renewable energy targets. All these explain a rally in clean energy ETFs (read: 5 ETF Areas Up At Least 45% in 2019).
China ETFs Resist Virus to a Large Extent
Despite the virus fear, China ETFs put up a great show in February with KraneShares MSCI All China Health Care Index ETF KURE gaining the most (up 11.9%), followed by Xtrackers Harvest CSI 500 China-A Shares Small Cap Fund ASHS (up 9.9%) and iShares MSCI China A ETF CNYA (up 9.6%). The phase-one U.S.-China trade deal and the rollout of Chinese stimulus may probably have led to the upside.
According to a Vanho Securities report, China's likely policy support could beat market expectations as “the country needs to grow at a faster pace in the second half to achieve decent full-year growth after the virus outbreak in the first half.”
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>