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Financials Sector Flails as Coronavirus Sweeps Through

But Michael Wong offers a peek at the bright side.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Michael Wong: The financial-services sector has underperformed the overall market year to date, recently being down about 30% compared to the overall market at 25%. The underperformance of the financial sector is understandable given that two of the primary earnings drivers of the financial sector, interest rates and asset prices, have dropped sharply over the past several weeks. In terms of interest rates, short-term interest rates have decreased with the U.S. Federal Reserve cutting the federal-funds rate 150 basis points to a target range of 0% to 0.25% in March to deal with the negative economic impact of the coronavirus. This compared to a target range of 1.5% to 1.75% at the end of 2019 and a recent peak of 2.25% to 2.5% at the end of 2018. The 10-year U.S. Treasury yield that is representative of long-term interest rates has also fallen to about 0.6% from 1.9% at the end of 2019. Many financial industries are sensitive to changes in interest rates such as banking, insurance, and investment services.

Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.