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Week in Review 2.28.2020

Week in Review

Week Ending: Friday, February 28, 2020

Recap & Commentary

U.S. equity markets ended the week lower with the S&P 500 and Dow posting their biggest one-week declines since 2008 as investors fretted about the rapid spread of the coronavirus and the breadth of its economic impacts. The S&P’s drop marked the quickest -10% correction in the index’s history. Reflecting the increased volatility, the CBOE Volatility Index (VIX) hit 40 on Friday, doubling the index’s value from the prior week. For reference, the index hit 36 amidst the volatility in late December 2018 and soared above 90 in 2008. The 10-Year Treasury yield hit an all-time low of 1.12% as investors sought safe haven assets. Oil fell -15% this week on concerns of declining global demand.
As of Friday, the World Health Organization had reported 84,000 cases of coronavirus and over 2,800 deaths. A spike in reported infections outside of China, including surges in Italy and South Korea, left investors worried about the spread of the virus. In Japan, all school were closed until April while Switzerland banned all public gatherings and events until further notice. In China, the government employed back-to-work programs, which saw over a third of employees outside of Wuhan returning to work.
Through Friday, 95% of S&P 500 companies had reported fourth quarter earnings. 71% of companies have beaten their earnings estimate and 65% have beaten their revenue estimates. Fourth quarter earnings growth is currently forecasted to be 0.9%.

Economic Bullet Points

Housing data pointed to continued improvement within the sector. Prices of previously owned homes increased 2.9% Y/Y in December, the fast pace since Jan. 2019. Separately, January new home sales surged 7.9%, to an annualized rate of 764k, the fastest pace since mid-2007. Compared to January 2019, sales increased 18.6%. Finally, existing homes for sale and under contract, jumped 5.2% in January, well ahead of expectations. While housing data is notoriously volatile, the preponderance of data points to improving conditions.
Durable Goods Orders declined -0.2% in January but came in well ahead of the expected -1.5% decline. Core orders, a better measure of business spending, increased a solid 1.1%.
GDP for 4Q19 and 2019 was left unrevised at 2.1% and 2.3%, respectively.
Inflation, as measured by core PCE, the Fed’s preferred gauge, remained benign in January, rising just 0.1% from December and 1.6% from a year ago.
Consumer income rose 0.6%, in January, up from just 0.1% in December. The gain, the largest in 11 months, included annual cost-of-living increases in Social Security benefits and tax credits tied to the Affordable Care Act. The increase coupled with a 0.2% increase in spending pushed the savings rate to 7.9%. .

Of Note

Chinese manufacturing fell to its lowest level ever in February, reflecting the impacts of the coronavirus outbreak, and efforts to contain it. It is unclear how long it will take for Chinese economic activity to rebound. According to official data, as of Wednesday, only 30% of small- and medium-sized businesses had resumed production.
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Market Indices Week of 2/28

S&P 500-12.8%
Small Caps-13.0%
Intl. Developed-9.6%
Intl. Emerging-7.2%
Commodities-6.9%
U.S. Bond Market0.6%
10-Year Treas. Yield1.16%
US Dollar-1.2%
WTI Oil ($/bl)$45
Gold ($/oz)$1,579

The Week Ahead

  • ISM Manufacturing
  • ISM Services
  • Nonfarm Productivity
  • Factory Orders
  • Feb. Employment Report
  • Trade Balance

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