US equities suffered consecutive large drops at the end of February, major indexes were down for the month with one of the worst weekly performances since 2008. S&P 500, Dow Jones, and NASDAQ fell 8.41%, 10.07%, and 6.38% respectively over the month.
Equity gains ebbed out amidst COVID-19 worries. With a number of manufacturers including Apple Inc. (NASDAQ: AAPL) already warning investors about a potential supply chain shock due to logistic constraints, many are concerned that the actual impacts of the virus could be wider than markets reflect.
In light of the potential global outbreak, the Fed responded to market expectations, announcing an unexpected emergency rate cut of 0.5%. This is the first time the emergency rate cut is utilised since the financial crisis in 2008, triggered a rise in market panic levels and markets responded negatively to the cut.
Various economic indicators remain relatively weaker, with both manufacturing PMI and consumer confidence index missing market expectations. Despite limited positive signs, monetary easing provides sufficient excess liquidity to support asset prices, which offers better downside protection for the US market.
Overall, the recent fall in equities is driven mainly by worsening market sentiment, rather than worsening fundamentals. Equities are expected to see recovery when market sentiment recovers. Thus, we remain positive on US equity performance over the whole year.