Economic Update 1-27-2020
- In a lighter week for economic numbers, home prices and sales both increased, while the index of leading economic indicators showed a decline to end the year.
- Global equity markets all fell due to global concerns over the new outbreak of the coronavirus in China. Bonds, in typical fashion, fared well with interest rates ticking down across the treasury yield curve. Commodities also suffered along with fears of a global growth impact from the virus—especially affecting already-battered energy prices.
Global stocks suffered in unison for the first week in some time, as concerns over spread of the coronavirus from China weighed on sentiment. In the past, such contagions, such as SARS in the early 2000s, have put a temporary damper on Chinese growth of up to a percent—this is especially a concern given the timing of this outbreak with the Lunar New Year celebration, which coincides with higher travel volumes that usually result in a spike in consumer spending.
By sector, defensive utilities ended the week as the only sector in the green, with energy and materials faring the worst. The sub-sectors of gaming, airlines, and tourism performed poorly, in keeping with the unknowns surrounding the magnitude of the virus and potential impact on global travel to and from affected locations. Administration discussions again about possible tariffs on European automakers also added to the soured sentiment to some degree possibly. Real estate gained in the U.S. and Europe, due to its defensive characteristics, but lost ground in Asia. Thus far, earnings results have come in for almost 20% of S&P companies, with positive surprises far outweighing negative ones. Growth is focused in utilities, financials and healthcare, while the energy sector continues to pull expectations for the broader market down to around -1% to -2% year-over- year. Hopes are that 2020 will be better following this coming week, which will bring a flood of company reports.
Foreign developed markets stocks ended the week with declines of a slightly smaller magnitude than U.S. stocks. On the positive side, German and French manufacturing picked up a bit, with some progress in Brexit decision-making. This was offset by greater weakness in emerging markets as expected, with Chinese equities falling upwards of -5% along with the mentioned likely economic impact of the virus, and peripheral Asia also registering losses. Oil exporters, such as Russia and Mexico fared poorly in light of far lower crude oil prices.
U.S. bonds gained as a result of the global turn away from risk assets, toward the safety of government debt, which offered the best returns of the week—outperforming corporates. High yield prices declined, in keeping with movements away from risk. Foreign bonds were similarly mixed, with developed market treasuries gaining ground, despite the headwind of a stronger dollar, and emerging market bonds declining.
Most commodity groups fell last week, led by overall demand concerns in energy and industrial metals—largely related to potentially weaker global growth in China as a result of to the potential virus contagion, but coupled with already strong stockpiles that have kept prices contained. The price of crude oil dropped by over -7% to a shade above $54/barrel, due to these global implications, while natural gas declined by a similar magnitude, to under $2/unit, with carryover demand effects in addition to warmer-than-normal weather around the U.S.
|Period ending 1/24/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.79||1.30|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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