ND&S Weekly Commentary (2.3.20) – Coronavirus Rocks Markets

February 3, 2020

Uncertainty over the spreading coronavirus outbreak from China last week affected markets worldwide and disrupted travel and trade. China’s financial markets were shut down for a week and will re-open on Monday, February 3rd. Equity markets declined across the board and U.S. fixed income rallied as investors sought safe-haven assets. For the week the DJIA, S&P 500 and NASDAQ declined 2.1%, 2.5% and 1.8%, respectively. Internationally, developed markets were down 2.5% and emerging markets were off the most at 5.0%. The worst performing sectors in the S&P 500 were energy and materials and the best performing was utilities. U.S. Treasuries rallied strongly as interest rates dropped across the board. The rate on the 10 Year U.S. Treasury dropped 19 basis points to close the week at a yield of 1.51%. US West Texas Crude (WTI) declined 5% to $51.30 per barrel while Gold finished the week up 1.3%.

In economic news last week, 4Q real GDP growth came in at 2.1% with positive contributions from consumer spending, housing and government spending. Housing benefited from 3 rate cuts from the Federal Reserve last year. At the FOMC meeting last week, the Federal Reserve announced it would keep their rate target unchanged while continuing repurchase operations through April. This week, look for reports on employment, international trade and ISM mfg./non-mfg. PMIs. With 56% of S&P 500 companies reporting earnings so far, 70% have beaten their consensus estimates on earnings (Earnings per Share) and 51% on revenue. From a sector standpoint, financials have been the strongest and energy the weakest, while information technology earnings have been stronger than expected.

We expect volatility to continue until there is more assurance that the coronavirus is under control. In the past, markets have been affected by previous viruses but have been able to bounce back as they were brought under control. In the interim, portfolio diversification will help to moderate volatility.

“We didn’t lose the game; we just ran out of time.”Vince Lombardi