Despite a promising start to the quarter, with equities reaching all-time highs in mid-February, markets took an abrupt downward turn in March. The dramatic spread of COVID-19 in Europe and the U.S. brought economic activity to a sudden halt as governments ordered people to stay at home. Businesses large and small, suddenly had to close as measures were implemented to slow the spread of the virus. Equity markets dropped dramatically as volatility spiked and unemployment soared. Large-cap stocks in the S&P 500 plunged to end the quarter down 19.6 percent. Stocks of smaller companies, represented by the S&P SmallCap 600 index, fell even further, losing 32.6 percent in Q1.

International stock markets were similarly impacted, with the MSCI Europe, Australasia, and Far East (EAFE) index falling 22.8 percent for the quarter. Emerging markets were also down sharply. Adding to the volatility, a plunge in oil prices sent ripples of anxiety across the energy sector.

With the sudden economic turmoil, short-term interest rates were slashed to zero by the Fed and other central banks. The prices of U.S. Treasuries, especially those with long maturities, soared as investors sought refuge from falling equity prices. Overall, the Bloomberg Barclays U.S. Aggregate Bond Index gained 3.2 percent for the first quarter.

The Financial Engines perspective.

The term “unprecedented” is overused in the financial press, but the first quarter brought conditions we have never seen before. The global economy went from healthy growth and full employment to near hibernation in a few weeks. Financial markets clearly anticipate difficult economic conditions to persist for some time – how long will depend on the success of measures taken by authorities to suppress the spread of the virus. We understand the events of the past month have been unnerving for you and your family. But we also know that acting on emotion makes for poor decisions. We continue to firmly believe in our approach to investment management; that a diversified portfolio tailored to your goals is the key to your long-term success. We are closely monitoring financial markets and making adjustments as necessary to your portfolio. Our advisors are here to answer your questions, and to help you keep your retirement plan on track. And most importantly, we want to wish you and your family good health during these challenging times.

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