Quarterly Market Review: January - March 2020

Quarterly Market Review: Q1 2020

The Markets (first quarter through March 31, 2020)

The world's economies and stock markets have been rocked by the spread of COVID-19. Investors' fears
prompted a major sell-off in February and March, plunging stocks well below their 2019 closing marks.
Nevertheless, 2020 started off in a positive way. Following a strong 2019, stocks were slow to move
forward as investors cashed in some of their 2019 gains. But by mid-January, each of the benchmark
indexes were safely ahead of their 2019 closing marks. However, concerns over the COVID-19 outbreak in
China quelled investor optimism. By the end of January, only the small caps of the Nasdaq remained ahead
of their prior year's pace, as each of the remaining indexes listed here fell into the red.


February started off as January ended, with investors more inclined to sell rather than buy equities.
However, word of China's plans to cut tariffs on some U.S. imports sent stocks higher during the second
week of the month. The Nasdaq was more than 6% over its 2019 year-end value while both the S&P 500
and the Dow also pushed ahead. But by the third week of February, the impact of the virus was becoming
evident with news of a widespread outbreak in South Korea. Selling accelerated the following week as
outbreaks were reported in Iran and Italy. As more cases were reported in the United States, investors
feared that containment of the virus was not likely and rushed to cash in stocks. By the end of February,
each of the indexes lost significant value led by the Dow, which fell more than 10% for the month.


March 2020 will surely go down as one of the most turbulent months. COVID-19 continued to spread
worldwide. In the United States, confirmed cases and, unfortunately, deaths spiraled. Fear became the
motivating factor in our daily lives — fear of catching the virus, fear of the illness affecting our loved ones,
fear of losing our jobs, fear of economic failure, and fear of losing our money. With respect to the stock
market, this fear manifested itself in a major sell-off for most of the month. After falling sharply during the
last week of February, stocks rebounded marginally to open the month. But that push was short-lived as
stocks plummeted dramatically mid-March, despite the announcement of new actions and legislation by the
Federal Reserve, Congress, and the President. On March 20, each of the benchmark indexes listed here
posted double-digit losses. Year to date, the major indexes were more than 20% behind their 2019 closing
values. The passage of the CARES Act at the end of the month helped ease investors' concerns enough to
move back to stocks. The end of the month saw each of the benchmark indexes post major gains, with the
Dow marking its best single day since 1938. However, the spike in index values was not nearly enough to
offset the major losses sustained throughout the month. March saw the Dow fall almost 14%, the S&P 500
drop over 12%, the Nasdaq lose 10%, the Global Dow give back close to 15%, and the small caps of the
Russell 2000 plunge nearly 22%.


The first quarter of 2020 closed with each of the benchmark indexes securely in the red compared to their
2019 year-end values. The Russell 2000 again suffered the largest three-month fall, closing the quarter
down nearly 31%. The Dow suffered its worst quarter since 1987, while the broader-based S&P 500 hasn't
seen a quarterly decline this bad since 2008. The Nasdaq fell more than 14%, marking its worst quarter
since 2018. The Global Dow fell over 24% for the quarter.


By the close of trading on March 31, the price of crude oil (WTI) had sunk to $20.35 per barrel, well below
the February 28 price of $45.19 per barrel. The national average retail regular gasoline price was $2.120
per gallon on March 23, down from the February 24 selling price of $2.466 and $0.503 less than a year
ago. The price of gold finished March at $1,591.20, slightly higher than its February closing value of


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Latest Economic Reports

• Employment: Employment rose by 273,000 in February after adding 225,000 new jobs in January. In
2019, job growth averaged 178,000 per month. Notable job gains occurred in health care and social
assistance, food services and drinking places, government, construction, professional and technical
services, and financial activities. The unemployment rate dropped 0.01 percentage point to 3.5% for the
month as the number of unemployed persons dropped by close to 100,000 to 5.8 million. In February,
average hourly earnings for all employees rose by $0.09 to $28.52. Average hourly earnings increased
by 3.0% over the last 12 months ended in February. The average workweek rose by 0.1 hour to 34.4
hours in February. The labor participation rate for February was 63.4%, the same as in the previous
month. The employment-population ratio was 61.1% last month (61.2% in January).


• FOMC/interest rates: The Federal Open Market Committee held several emergency meetings in
March, dropping the target range for the federal funds rate 150 basis points to 0.00%-0.25%. To further
combat the economic impact of COVID-19, the Committee proffered a number of new and drastic
measures. Among the actions taken by the Fed are unlimited bond buying including the purchase of
corporate bonds; $300 billion in new financing; and the establishment of two new facilities, the Term
Asset-Backed Securities Loan Facility to enable the issuance of asset-backed securities, and a Main
Street Business Lending Program to support lending to eligible small and medium-sized businesses.


• GDP/budget: According to the third and final estimate for the fourth-quarter gross domestic product, the
economy accelerated at an annualized rate of 2.1%, the same rate as in the third quarter. Consumer
spending grew at a rate of 1.8% (3.2% in the third quarter), fixed investment fell 0.6% in the fourth
quarter (-0.8% in the third quarter), and nonresidential fixed investment dropped 2.4% in the fourth
quarter, compared to a 2.3% decline in the prior quarter. Consumer prices advanced at a rate of 1.4% in
the fourth quarter, comparable to the third quarter (1.3%).


• Last February saw a budget deficit of $235 billion. Through the first five months of the 2020 fiscal year,
the deficit sits at $624.5 billion, 14.8% greater than the deficit over the same period last fiscal year.
Compared to the same period last year, government spending climbed 9.2%, far exceeding receipts,
which rose 7.0%. In February, the largest expenditures were for Social Security ($91 billion), income
security ($91 billion), national defense ($55 billion), and Medicare ($52 billion). On the income side of
the ledger, social insurance and retirement accounted for $100 billion and individual income taxes
totaled $70 billion.


• Inflation/consumer spending: According to the Personal Income and Outlays report for February,
personal income rose 0.6% for the month, the same advance as in the previous month. Disposable, or
after-tax, income increased 0.5% after increasing 0.6% in January. Consumer spending rose 0.2% in
February for the second consecutive month. Price inflation remained low, however, as consumer prices
inched ahead 0.1% for the third month in a row. Over the last 12 months, consumer prices are up 1.8%.


• The Consumer Price Index inched ahead 0.1% in February, the same increase as in January. Year to
date, consumer prices are up 2.3%. Increases in prices for shelter (which makes up the largest portion
of overall consumer costs) climbed 0.3% in February following the same 0.3% increase in January.
Energy prices dropped 2.0% in February after falling 0.7% in January. Gas prices plummeted 3.4%
while fuel oil prices decreased 8.5%.


• Prices producers receive for goods and services fell 0.6% after advancing 0.5% in January. The index
has increased 1.3% since last February. Producer prices less foods, energy, and trade services inched
down 0.1% in February following a 0.5% increase in January. Since February 2019, prices less foods,
energy, and trade services moved up 1.4%. In February, producer prices for goods fell 0.9%, the largest

decline since moving down 1.1% in September 2015. Over 60% of the February decrease in goods
prices is tied to a 3.6% drop in energy prices.


• Housing: After falling 1.3% in January, existing home sales jumped 6.5% in February. Year over year,
existing home sales are up 7.2% (9.6% for the 12 months ended in January). The median sales price for
existing homes was $270,100 in February, compared to $266,300 in January. Existing home prices were
up 8.0% from February 2019. Total housing inventory at the end of February was 1.47 million, an
increase from the January rate of 1.42 million units for sale. Following a strong January, sales of new
single-family homes decreased in February, falling 4.4% below January's totals. Sales are 14.3% above
the February 2019 estimate. The median sales price of new houses sold in February was $345,900
($348,200 in January). The average sales price was $403,800 in February ($402,300 in January).
Available inventory, at a 5.0-month supply, was slightly lower than January's 5.1-month supply.


• Manufacturing: For the first time in three months, industrial production increased, climbing 0.6% in
February after falling 0.5% the previous month. Manufacturing output edged up 0.1% last month but is
still 0.4% below its level of a year earlier. Total industrial production was unchanged from a year earlier.
New orders for durable goods climbed 1.2% in February following a 0.1% increase in January. New
orders have advanced four out of the last five months. For the year, new orders for durable goods are up
0.4%. New orders for transportation equipment drove the increase, vaulting 4.6% in February. However,
excluding transportation, new orders fell 0.6%. New orders for capital goods (manufactured assets used
by businesses to produce consumer goods) jumped ahead 4.1% in February, driven primarily by a jump
in new orders for defense capital goods, which soared 25.7%. Orders for nondefense capital goods
inched up 0.5%.


• Imports and exports: Import prices fell 0.5% in February after inching up 0.1% in January. February's
drop in import prices was the largest decrease since a similar decrease last August. Since February
2019, import prices have fallen 1.2%. Fuel imports plunged 7.7% in February, the largest monthly
decline since prices receded 7.8% in June 2019. Excluding fuel, import prices actually increased 0.3% in
February. Prices for exports dropped 1.1% last month after advancing 0.6% in January. This is the
largest monthly decrease in export prices since December 2015. Prices for exports decreased 1.3% on
a 12-month basis from February 2019.


• The international trade in goods deficit was $59.9 billion in February, down from $65.5 billion in January.
Exports of goods for February increased 0.5% to $136.5 billion. Imports of goods dropped 2.6% to
$196.4 billion.


• The latest information on international trade in goods and services, out March 6, is for January and
shows that the goods and services trade deficit shrank to $45.3 billion, $3.3 billion less than the
December trade gap. January exports were $208.6 billion, $0.9 billion less than December exports.
January imports were $253.9 billion, $4.2 billion lower than December imports.


• International markets: The spread of COVID-19 sent world markets and economies tumbling. With
over 110 countries and territories reporting cases of the virus, major institutions and banks have cut their
forecasts for the global economy. Several nations, led by China, have ordered certain areas locked
down, restricting movements of millions of people and suspending business operations. China's gross
domestic product is expected to plunge to 4.9% this year, slower than earlier forecasts of 5.7% annual
growth. Year to date, the STOXX Europe 600 Index fell almost 23%, Germany's DAX slipped over 24%,
France's CAC 40 lost 24%, Italy's FTSE MIB Index dropped 26%, the UK's FSTE 100 Index has given
back close to 23%, and Japan's NIKKEI 225 is down 21%.


• Consumer confidence: Not surprisingly, the Conference Board Consumer Confidence Index® declined
sharply in March. The index fell to 120.0 from February's 132.6. The Present Situation Index — based on
consumers' assessment of current business and labor market conditions — decreased from 169.3 to
167.7. However, the Expectations Index, which is based on consumers' short-term outlook for income,
business, and labor market conditions, fell from 108.1 to 88.2.

Eye on the Month Ahead

Individuals' health is of primary importance as the world continues to battle the effects of COVID-19. Of
secondary, but great importance, is the impact of this pandemic on the world's economies and markets.
April will, hopefully, begin to point toward recovery of both personal and economic health. The impact of the
CARES Act should begin to be felt by individuals and businesses next month.



Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City
Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance:
Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);
www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate
press releases, or trade organizations. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be
relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk,
including the potential loss of principal, and there can be no guarantee that any investing strategy will be


The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded
blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common
stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index
is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell
2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow
is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar
Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies.
Market indices listed are unmanaged and are not available for direct investment.

Important Disclosures

This information has been designed for general informational and educational purposes only and does not
constitute an offer to sell or a solicitation of an offer to buy any security. Such offers can only be made
where lawful under applicable law. These materials have been obtained and derived based on information
from public and private sources that Zhang Financial LLC believes to be reliable. However, no
representation, warranty or undertaking, stated or implied, is given as to the accuracy or completeness of
the information contained herein, and Zhang Financial LLC expressly disclaims any liability for the accuracy
and completeness of this information. Zhang Financial LLC does not intend to provide investment advice
through these materials and does not represent that any market position, economic forecast, securities or
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making a fully informed investment decision and they do not render business, tax or legal advice. Each
client or prospective client should consult his/her own attorney, business advisor and tax advisor as to
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opinions and views contained herein have not been tailored to the investment objectives of any one
individual, are current only as of the date noted and may be subject to change at any time without prior
notice. Past performance does not guarantee future results. All investing involves risk of loss including the
possible loss of principal.


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