A week on the markets: government bonds rally, investors shrug off stimulus efforts, and stocks take another tumble

“Just when you thought the worst of the selling was over, along comes a storm surge of pain,” says Russ Mould, investment director at AJ Bell.

“Global markets ended the week on a terrible note with very large declines recorded on Friday on the main UK, European, Asian and US indices.

“Investors flocked to government bonds in search of safer havens, in particular driving up the price of US Treasuries and causing yields to collapse. The 10-year yield fell to 0.74% and the 30-year yield dropped to 1.32%.

“The market has so far shrugged its shoulders at stimulus efforts including interest rate cuts from the US Federal Reserve, as well as initiatives such as the International Monetary Fund offering $50 billion for affected countries as the outbreak spreads to 70 of its members.

“Investors are worried about an increase in the number of virus cases, more companies warning about earnings, and a disruption to society whereby a shift to home working and the shuttering of schools could result in a sharp drop in consumer spending, putting more pressure on the economy.

“News flow has been progressively negative. Earlier this week General Electric joined a growing list of stocks warning about a hit to earnings because of coronavirus-related disruption, saying it expected a $300 million to $500 million hit to free cash flow in its first quarter.

“ITV warned that a sharp drop in marketing activity by travel companies would cause a 10% hit to its advertising revenue in April. Airline Flybe went into administration, partially blaming the collapse on a downturn in travel demand.

“Investor fears that appetite would wane for spring and summer holidays resulted in TUI’s shares falling by 37% in value over the past two weeks. The sharp decline in its valuation cost the travel company its place in the FTSE 100 with the result of quarterly reshuffle demoting the business to the FTSE 250 index.

“Outsourcing group Capita lost 47% of its value over the past week after its restructuring was costing more and taking longer than expected.

“Cineworld failed to convince the market that it was in good health. The postponement of the latest James Bond film, together with growing concerns about its very large amount of debt linked to two major acquisitions, led investors to worry about the state of the business. Its shares fell nearly 30% over the week.”