Market Update: Tues, Feb 25, 2020 | LPL Financial Research


Monday’s sell-off scary, but also entirely normal. In a market that may have run a bit ahead of itself, sensitivity to a downside catalyst is not surprising. And while fear of a second major Covid-19 outbreak developing is a legitimate concern and did merit some market repricing, progress toward containment remains the baseline. The S&P 500 Index currently sits about 5% from its all-time high, within the norm for similar outbreaks historically, while S&P 500 futures are pointing to stabilization overnight.

Third-largest drop ever. The Dow fell 1031.61 points yesterday, for the third-largest one-day drop ever. Although this made all the headlines, it is very important to remember to look at the percentage drop to get a more apples-to-apples comparison. Yesterday’s 3.56% drop ranks as the 254th largest drop ever, significant but quite a different story.

Fed likely holding a surprise insurance cut in reserve. If the Federal Reserve (Fed) similarly expects a second half economic rebound, it will be reluctant to cut rates, but would certainly move to help restore confidence if needed. Expect Fed talking points to deemphasize a cut, maximizing the impact of a cut should we need one. Any cut would likely be characterized as an “insurance cut,” and may even be accompanied by language pointing to a single hike should the economy rebound.

Bonds have a 40+ year track record of resilience, but lower yields should temper return expectations. In the 43-year history of Bloomberg Barclays Aggregate Bond Index total returns, the index has only posted three calendar years with negative returns, the worst of them in 1994 at -2.9%. But as yields fall, returns have also fallen. Bonds have received a boost from declining yields since they peaked in 1981, and rising rates could still lead to losses. For a deeper dive, see the LPL Research’s Blog, to be posted later today.



This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use – Tracking 1-955478