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  • February 3, 2020

Week in Review

Week Ending: Friday, January 31, 2020

Recap & Commentary

U.S. equity markets suffered their largest weekly decline since last August, as concerns about the spread of the Wuhan coronavirus overshadowed the Fed, economic data and corporate earnings reports. Bonds rose as investors sought safe have assets, pushing the 10-Year Treasury yield to a five-month low.

In response to rapidly rising new coronavirus cases, global authorities stepped up their efforts to contain its spread. China placed multiple cities, with a combined population of 45 million, under quarantine, airlines cut flights to China, and the World Health Organization (WHO), declared the virus a “global health emergency”. As of Friday, China had reported over 12,000 cases, along with 250 deaths. Twenty-two other countries had also reported cases.

After 57 years, Friday, January 31 marked the UK’s final day as a member of the EU. Now that the UK has left, the difficult work of negotiating multiple trade, travel, and business agreements must begin. UK PM Boris Johnson has stated that he would like to have all such deals finalized by year end. Many experts doubt whether such complex negotiations can be completed in such a relatively short period of time.

As expected the Federal Reserve voted to leave rates unchanged following the conclusion of its January meeting. Current market expectations are for the Fed to cut rates at least twice in 2020.

Through Friday, 225 S&P 500 companies had reported fourth quarter earnings. Thus far, 69% of companies have beaten their earnings estimate. Full-quarter earnings growth is currently forecasted to be -0.3%.

Economic Bullet Points

Real GDP increased at a modest 2.1% annualized rate in the fourth quarter. Year-over-year, real GDP rose 2.3%, marking its slowest pace of annual growth since 2016, and economists are calling for further slowing in Q1- 2020.

Durable Goods Orders rebounded 2.4% in December, the most since August 2018, led by a 90.2% surge in aircraft orders. But excluding defense, durable goods orders fell -2.5%, down for the fifth month in a row. Also, on a y/y basis, durable goods orders dropped -3.2%, its eighth consecutive monthly decline.

New Homes Sales dipped -0.4% in December, which ran contrary to the consensus expectation of a 1.5% gain. Additionally, the previous three months were revised down by a total of 32,000 units. However, on an average annual basis, new home sales rose 10.3% in 2019, the highest level since 2007, led by double-digit gains in the South and West regions.

Consumer Confidence—The Conference Board’s Consumer Confidence Index increased 3.4 points in January to 131.6, above the consensus expectation of 128.0. While off its cycle peak, the index is still elevated and close to its highest level in nearly two decades. It continues to support a positive outlook for consumer spending growth and the broader economy in 2020.

Of Note

President Trump officially signed the U.S., Mexico, Canada (USMCA) Trade Agreement, also referred to as “New NAFTA”, into law. Canada’s Parliament must still ratify the agreement before it can take effect.

Market Indices Week of 1/31

S&P 500-2.1%
Small Caps-2.9%
Intl. Developed-2.5%
Intl. Emerging-5.1%
Commodities-3.2%
U.S. Bond Market0.6%
10-Year Treas. Yield1.50%
US Dollar-0.5%
WTI Oil ($/bl)$52
Gold ($/oz)$1,587

The Week Ahead

  • ISM Manufacturing
  • ISM Services
  • Factory Orders
  • Trade Balance
  • Non Farm Employment.

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