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Week in Review 1.24.2020

Week in Review

Week Ending: Friday, January 24, 2020

Recap & Commentary

Markets ended the week lower, as investors fretted about the spread of the newly identified Wuhan coronavirus. In addition, the recent signing of the Phase One trade deal between the U.S. and China removed from the markets what had been a steady tailwind.The S&P 500 fell -0.9% on Friday, its worst day since early October, as concerns about the Wuhan coronavirus intensified. As of Friday, China had reported more than 1,000 cases of the newly discovered virus, along with 40 deaths. Meanwhile the U.S. and Europe reported their first two cases. Efforts to contain the outbreak are being complicated by the Chinese New Year, a time when millions of people traditionally travel across the country to spend time with family. In an effort to stem the spread of the virus, Chinese authorities have implemented a number measures including travel bans and restrictions. Those measures could ultimately impact what is typically a peak period for spending.

The Senate heard opening arguments in the impeachment trial of President Trump. As we have discussed previously, markets have largely viewed the impeachment proceedings as a non-event given the near-guarantee that the Senate will ultimately acquit the President.

Through Friday, 85 S&P 500 companies had reported fourth quarter earnings. Of those, 73% beat their earnings estimate, while 67% beat their revenue estimate. The current consensus forecast is for 4Q19 earnings growth to contract -1.9%.

Economic Bullet Points

Leading Economic Index–The Conference Board’s Leading Economic Index (LEI) fell -0.3% in December, down in four of the past five months, and by the most since January 2016. Three of the ten LEI components made negative contributions (jobless claims, ISM new orders, and building permits). But jobless claims have already come down this month, high builder confidence suggests permits should improve, and the phase-one trade deal with China is expected to boost factory orders in the coming months. For these reasons, economists expect the LEI to stabilize in the near-term. On a y/y basis, the LEI was up just 0.1%, the least since November 2009. These indicators suggest that growth momentum has subsided in 2H 2019.Existing Home Sales rebounded 3.6% in December, the most in ten months, to a 5.54 million unit annual rate, the highest level since February 2018. The consensus was for a 1.5% gain to a 5.43 million unit rate. Sales were up 10.8% y/y, the fastest pace since November 2016. For the full year, existing home sales were 5.43 million units, unchanged from 2018. But households are well positioned to drive up sales in 2020, amid low unemployment, solid job and wage growth, and more household formations.

Of Note

Goldman Sachs, the largest underwriter of initial public offerings (IPOs) in the U.S., announced that it will no longer take companies public in the U.S. or Europe if the board lacks either a female, or diverse director. In 2021, Goldman intends to raise the threshold to two diverse directors.
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Market Indices Week of 1/24

S&P 500-1.0%
Small Caps-2.2%
Intl. Developed-0.6%
Intl. Emerging-2.4%
Commodities-3.1%
U.S. Bond Market0.8%
10-Year Treas. Yield1.68%
US Dollar0.3%
WTI Oil ($/bl)$54
Gold ($/oz)$1,571

The Week Ahead

  • GDP
  • Durable Goods Orders
  • New Homes Sales
  • Personal Income
  • Consumer Confidence

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