Weekly market update
Global equities saw declines last week as coronavirus concerns continued to weigh on investor sentiment – the Dow fell 2.52%, the S&P500 fell 2.10% and the NASDAQ fell 1.75%. The losses for the Dow and S&P500 was enough to send those indices into negative territory for the year thanks to a sharp selloff on Friday.
But it was an odd week. Monday was the worst day for stocks since October and Tuesday was the best day for stocks since October. It was like with the trade war – one-day pessimism and the next optimism.
Who would have had “the entire world cutting off the 2nd largest economy for an indefinite time period” in their 2020 Outlooks? Can I get a show of hands? Bueller? Vice Governor of Hubei province says 100K beds are ready for coronavirus patients in 112 hospitals. `
Global yields continued to fall as risk-averse investors sought safe-haven assets. The yield on the 10-year U.S. Treasury fell from 1.80% the prior week to a low of 1.49% last week. Wall Street bets for a rise in U.S. government bond rates in 2020 have been dealt a blow, amid the rapidly spreading coronavirus, which has spurred a powerful bond rally since last week. Such bearish bond predictions had seemed like a slam dunk at the end of the year, as a partial U.S.-China trade agreement was expected to remove a longstanding source of market uncertainty and give way to rallying stocks and a waning appetite for bonds.
Earnings and economic data seemed to ease investor’s fears early in the week, but they weren’t enough to stop the selling late week. Technology names like Apple and Amazon crushed their earnings estimates as did Tesla. Now about this Amazon earnings call. They beat across all metrics and earnings blew through estimates by 58% for the average analysts’ estimate. Caterpillar and Honey both beat on earnings but came in a bit shy on revenue. Expect the virus will obviously be a topic on most earnings conference calls but I can’t imagine there’s a way for CEOs to truly know the impact they’ll have until it’s behind us. All speculation.
On the economic front, U.S. durable goods orders came in better than expected, but the prior reading was revised lower.
Consumer confidence soared despite the concerns over the coronavirus and the Richmond FED report came in at 20 verse -3 estimated. That was the biggest beat relative to expectations since 2009.
Following the big upside surprise in existing home sales, analysts expected new home sales to extend gains further in December but they disappointed significantly, dropping 0.4% MoM (vs +1.5%) and worse still, November’s 1.3% jump was revised drastically lower to down 1.1% MoM.
We also got the first read on Q4 2019 GDP which came in as expected at 2.1%.
The FED held their 2-day policy meeting last week and as expected held rates unchanged. They basically said, “steady as she goes”. They did mention that the pace of household spending has gone from strong to moderate. And they boosted the interest on excess reserves rate, known as IOER, 5 basis points to 1.6%. That helps the banks out. Fed Chairman Jay Powell did say that uncertainties about the outlook remain, including coronavirus outbreak.
This week will be another big week for earnings and we are sure to hear questions about how the coronavirus will impact not only earnings but economic data as well. We will get both manufacturing and non-manufacturing readings this week. We will also get vehicle sales and most importantly the latest read on the jobs report. We will be monitoring how the virus outbreak will impact stocks as well, but we are still on about 2-3% from all-time highs, so nothing crazy so far. Be sure and stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
