US Month in Markets - February 2020

Market Summary

Index Returns - February 2020

Economic Surprise

The index measures economic data relative to expectations.

A positive number indicates that economic data has outperformed expectations.

Key News and Events

  • Global equities fell sharply in February 2020 as the international spread of Coronavirus gathered pace. Equity markets had looked unruffled for much of the month, reaching an all-time high mid month, as the virus looked to have been contained within China at the time. News of significant outbreaks outside China, particularly in South Korea, Italy and Iran, sparked a sharp sell-off over the last week of February, with major indices falling by over 10% from their peaks. The 10-year U.S. treasury yield fell to a record low amidst heightened demand for safe-haven assets. The CBOE Volatility Index (VIX), Wall Street’s “fear gauge,” surged to 40.1 at the end of the month, having averaged 15.2 over the past 12 months.
  • The number of confirmed Coronavirus cases1 rose from below 10,000 to above 85,000 over the month. Nearly 3,000 people have now died from the disease, almost four times the number of deaths officially attributed to serious acute respiratory syndrome (SARS). The World Health Organization (WHO) raised the global risk alert for Coronavirus to the highest level. As at the end of the month, the Coronavirus is spreading faster outside China than within, with experts warning that a global pandemic is now almost inevitable.
  • China announced that tariffs on a limited number of U.S. imports will be halved, as scheduled Chinese purchases of U.S. goods under the “phase one” U.S.-China trade agreement looks likely to be delayed by the Coronavirus outbreak. The People’s Bank of China injected liquidity into the banking system and cut its reverse repo rates in a bid to ease the pressure on the economy.
  • In the U.S., the Democratic Party began its presidential primaries over the month to select a candidate to face President Trump in November’s election. Senator Bernie Sanders, a self-described democratic socialist, is leading the race in the number of delegates won after the first four contests. Former Vice President Joe Biden, considered as a moderate within the party, is behind in second place. Over half of the delegates will be decided over March, starting with the “Super Tuesday” primaries on March 3.
  • As widely expected, President Trump was acquitted by the U.S. Senate following a three-week impeachment trial. In a largely party-line vote that fell well short of the two-thirds majority required to remove him from office, Trump was acquitted on the abuse of power charge by a vote of 52-48 and on the obstruction of Congress charge by a vote of 53-47.
  • In the U.K., Brexit negotiations ran into difficulties as the U.K. and the European Union (E.U.) clashed on “level playing field” requirements. U.K. Prime Minister Boris Johnson stated that Britain would be prepared to leave the E.U. on World Trade Organization’s (WTO) terms if progress is not made by June 2020. Meanwhile, the European Union budget summit ended without an agreement as member states clashed on ways to fill the estimated €60bn-€75bn funding gap created by Brexit.

Market Highlights


  • Global equity markets fell sharply over the month. Despite reaching record highs in mid-February, global equities reversed all its previous gains at the end of the month, recording the worst weekly performance since 2008 as the number of Coronavirus cases outside China surged.
  • The S&P 500 index fell by 8.2% over the month, falling below 3,000 to reach its lowest level since October 2019. It did, however, outperform the MSCI World index, which fell by 8.4%. On a 12 month rolling basis, the S&P 500 index outperformed the MSCI World index (8.2% vs 5.2%).
  • U.S. Small Cap stocks underperformed Large Caps over the month, as the Russell 2000 index fell by 8.4%. Small Cap’s underperformance was also observed on a 12-month rolling basis, with the S&P 500 index significantly outperforming the Russell 2000 index (8.2% vs - 4.9%).
  • Growth stocks outperformed Value stocks over the month as measured by the MSCI USA Growth and Value index. Growth Stocks fell by 6.7% while Value Stocks fell by 9.7% over the month. On a 12-month rolling basis, Growth Stocks also outperformed Value Stocks (16.8% vs 0.1%).


  • Yields tumbled over February, reaching record lows at the end of the month amidst heightened demand for safe-haven assets and expectations of monetary easing by major central banks. Markets are now expecting a Federal Reserve rate cut at its March meeting.
  • The 10-year U.S. treasury yield fell by 37bps to 1.15% and the 30-year U.S. treasury yield fell by 34bps to 1.67% over the month. Meanwhile, the 20-year TIPS yield fell by 9bps to 0.00% and 20 year breakeven inflation fell by 28bps to 1.46% over the month.
  • Investment grade corporate bonds delivered a positive return as rising credit spreads were counteracted by a fall in underlying risk-free yields. The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 22bps to 131bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 22bps to 173bps over the month.
  • Meanwhile, riskier credit assets performed less well. The U.S. High Yield bond spread over U.S. treasury yields rose by 101bps to 504bps and the spread of USD denominated E.M. debt over U.S. treasury yields rose by 57bps to 380bps over the month.


  • The S&P GSCI index fell by 8.4% in USD terms over the month.
  • The S&P GSCI Energy index fell by 12.4% as the price of WTI crude oil fell by 13.2% to US$45/BBL.
  • Industrial Metal prices fell by 1.2% as copper prices rose by 0.1% to US$5,573/MT.
  • Agricultural prices fell by 2.9% and gold prices rose by 1.6% to US$1,610/Oz.


  • The U.S. dollar appreciated against most major currencies over the month.
  • Sterling depreciated by 3.1% against the U.S. dollar over the month, ending the month at $1.28/£. The euro depreciated by 0.9% against the U.S. dollar over the month, ending the month at $1.10/€.
  • The Japanese yen appreciated by 0.5% against the U.S. dollar over the month, ending the month at ¥107.87/$, while the Canadian dollar depreciated by 1.5% against the U.S. dollar over the month, ending the month at C$1.34/$.

Highlighted Economic Release

China Official PMI (February 29)
China’s official manufacturing PMI fell by 14.3 points to a record low of 35.7 in February. The Coronavirus outbreak and the shutdown measures used to contain it have significantly disrupted supply chains. The non-manufacturing PMI, which measures the services sector, contracted even more sharply, falling from 54.1 to a record low of 29.6 in February. The transportation, tourism, and entertainment sectors have been hit hard during the outbreak as people avoided crowded areas.

Canada GDP Growth (February 28)
The Canadian economy grew at an annualized rate of 0.3% in Q4 2019, recording its worst performance in nearly 4 years. An eight-day railway strike, along with a temporary shutdown of the Keystone Pipeline following an oil leak, was a drag on growth.

Markit U.S. Composite PMI (February 21)
The Markit U.S. Composite Purchasing Managers’ Index (PMI) fell by 3.7 points to 49.6, pointing to the first monthly private sector contraction since late 2013. The weakness was primarily observed in the services sector, with the Services PMI index falling by 4.0 points to 49.4. Meanwhile, the manufacturing sector continued to expand, albeit at a slower rate, as the Manufacturing PMI fell by 1.1 points to 50.8.

Markit Eurozone Manufacturing PMI (February 21)
The Eurozone Manufacturing PMI improved in February, rising by 1.3 points to 49.2, but remained in the contractionary territory. Meanwhile, the service sector PMI rose by 0.3 points to 52.8.

Japan GDP Growth (February 17)
The Japanese economy contracted sharply in Q4 2019, declining by an annualized rate of 6.3% as typhoon damages and worse than expected impacts from a rise in consumption tax dragged on growth.

UK GDP Growth (February 11)
The U.K. economy experienced no growth over Q4 2019 as consumer spending stagnated over the quarter. The services sector (which accounts for 80% of the economy) grew by 0.1%, the weakest rate since mid-2016. Over 2019, the U.K. economy grew by 1.1%, down from 1.3% in 2018.

U.S. Nonfarm Payrolls (February 7)
225,000 jobs were added to the U.S. economy in January, beating the previous month’s job gains of 147,000. The unemployment rate edged higher by 0.1% to 3.6%, whilst the labor force participation rate increased by 0.2% to 63.4%, the highest level since 2013.

About Aon Global Asset Allocation

Where are we in the economic cycle? What is the relative value of different asset classes? How are technical factors, such as regulation, impacting prices? Aon’s Global Asset Allocation team continually asks and answers questions like these. We use our findings to help clients make timely decisions about asset allocation in their schemes’ portfolios.

With over 160 years of combined experience, the team is one of the strongest in UK investment consultancy today.

Our experts analyze market movements and economic conditions around the world, setting risk and return expectations for global capital markets.

The team use those expectations to help our clients set and, when it’s right to do so, revise their long-term investment policies.

We believe that the medium-term (1–3 years) has been under exploited as a source of investment performance. Maintaining medium-term views that complement our long-term expectations, we help our clients to determine when to make changes to their investment strategy.

Appendix: Index Definitions

S&P 500 Index – The market-cap-weighted index includes 500 leading companies and captures approximately 80% of available market capitalization.

Russell 2000 Index - The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

MSCI World Index - A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, representing 24 developed market country indices.

MSCI USA Value/Growth - The MSCI USA Value/Growth Index captures U.S. large and mid cap securities exhibiting overall value/growth style characteristics. The value investment style characteristics for index construction are defined using three variables: book value to price, 12 month forward earnings to price and dividend yield. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend.

Bank of America Merrill Lynch U.S. Corporate Index - An unmanaged index considered representative of fixed-income obligations issued by U.S. corporates.

Bank of America Merrill Lynch U.S. High Yield Index - An unmanaged index considered representative of sub-investment grade fixed-income obligations issued by U.S. corporates.

Bloomberg Barclays U.S. Government Index - An unmanaged index considered representative of fixed-income obligations issued by the U.S. government.

Bloomberg Barclays Long Credit Index - An unmanaged index considered representative of long duration fixed-income obligations issued by U.S. corporates.

S&P GSCI – A world-production weighted index that is based on the average quantity of production of each commodity in the index.

JPMorgan EMBI Global Diversified – An unmanaged index considered representative of USD denominated fixed-income obligations issued by the emerging market governments.

Appendix: Data Disclaimers

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, "Barclays"), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group [year]. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®” “Russell®”, “FTSE Russell® are a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (

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