Monthly Archives: January 2020

Economy grows 2.1% in Q4

The U.S. economy grew slightly faster than 2% in the final three months of 2019, aided by a temporary plunge in imports and a resurgent housing market. The modest rate of growth likely foreshadows what lies ahead.

Gross domestic product, the official scorecard for the economy, expanded at a 2.1% clip in the fourth quarter. Analysts had forecast a 1.9% increase.

The U.S. got off to sizzling start last year as GDP reached 3.1% in the first quarter, but growth tapered off to the post-recession average of around 2% after the trade war with China intensified and business investment slumped.

The government’s snapshot of the economy toward the end of last year offers a glimpse of what’s in store for 2020. Consumer spending has fueled a record expansion now in its 11th year even as businesses have cut back on investment and production. Those trends are likely to persist.

Consumer spending, the lifeblood of the economy, rose at a 1.8% pace in the fourth quarter. While that’s a big drop-off from gains of 3.2% and 4.6% in the spring and summer, it’s still more than enough to keep the economy on a stable path of growth.

Households have spent generously over the past year as unemployment fell to a 50-year low of 3.5%. Wages are rising at a healthy 3% rate and layoffs are at the lowest level in decades.

The steady pulse of consumer spending, meanwhile, has led to higher sales for businesses and allowed them to maintain current staffing even as the economy has slowed.

Most economists predict the U.S. will grow less than 2% in 2020, compared with 2.3% in 2019 and 2.9% in 2018.

Market Insights 1/30/2020

Despite a slightly better-than-expected Q4 GDP report, major indexes spent most of the day in the red, as coronavirus concerns continued to keep a lid on sentiment.

Global equities were mostly lower on the day. Oil prices fell and gold was up.

U.S. Treasuries added to recent strength and the U.S. dollar weakened versus most of its major peers.

The Markets…

The Dow Jones Industrial Average rose 125 points (0.4%) to 28,859

The S&P 500 added 10 points (0.3%) to 3,284

The NASDAQ picked up 24 points (0.3%) to 9,299

879 million shares were traded on the NYSE and 2.3 billion shares changed hands on the NASDAQ

WTI oil shed $1.19 to $52.14 per barrel and wholesale gasoline fell $0.04 to $1.49 per gallon

The Bloomberg gold spot price was up $13.20 to $1,589.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% to 97.86

Q4 GDP growth slightly higher than expected, jobless claims exceed estimates

The first look (of three) at Q4 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.1%, matching the unrevised growth in Q3, and slightly above the 2.0% increase forecasted by Bloomberg. Personal consumption rose 1.8%, below forecasts of a 2.0% rise and Q3′s unadjusted 3.2% gain. For 2019, GDP growth was 2.3% y/y, down from 2.9% in 2018 and the slowest pace since 2016.

On inflation, the GDP Price Index came in at a 1.4% rise, well below expectations to match the unrevised 1.8% increase seen in Q3, while the core PCE Index, which excludes food and energy, moved 1.3% higher, south of expectations of a 1.6% rise and the unadjusted 2.1% advance in Q3.

Weekly initial jobless claims declined by 7,000 to 216,000, versus estimates of 215,000, with the prior week’s figure being revised higher by 12,000 to 223,000. The four-week moving average declined by 1,750 to 214,500, while continuing claims fell by 44,000 to 1,703,000, south of estimates of 1,730,000.

Treasuries were higher, with the yield on the 2-year note declining fractionally to 1.42%, the yield on the 10-year note falling 1 basis point to 1.59%, and the 30-year bond rate decreasing 2 bps to 2.01%. Bond yields and the stock markets remain hampered by intensifying concerns regarding the impact of the spreading coronavirus and in the wake of today’s data, which followed yesterday’s unchanged monetary policy decision and dovish tone from the Fed.

Tomorrow will bring readings on Personal Income, PCE inflation, and a final number from January’s University of Michigan Consumer Sentiment. Personal Income for December is expected to come in with an increase of 0.3% month-over-month, slightly lower than November’s 0.5% increase. The PCE, which is the Fed’s preferred measure of inflation, is expected to show a modest 1.6% year-over-year increase.

Bank of England surprises with no rate cut, global equites fall

The Bank of England left its monetary policy stance unchanged, with recent signs of economic recovery keeping the central bank on hold, surprising some that had expected a rate cut. The BoE’s decision also accompanied a forecast for slower growth in 2020. German unemployment unexpectedly fell and the nation’s consumer price inflation was subdued. In the Eurozone, economic confidence improved more than expected. The euro, British pound and Japanese yen all rallied versus the U.S. dollar. Global bond yields were mostly lower, but U.K. yields jumped, especially on the short-end, after the BoE refrained from cutting rates.

The U.K. FTSE 100 Index, Germany’s DAX Index and France’s CAC-40 Index declined 1.4%, Italy’s FTSE MIB Index dropped 1.6%, Switzerland’s Swiss Market Index traded 1.0% lower, and Spain’s IBEX 35 Index decreased 0.7%.

Hong Kong’s Hang Seng Index fell 2.6%. Japan’s Nikkei 225 Index dropped 1.7%. South Korea’s Kospi Index also traded 1.7% to the downside. Australia’s S&P/ASX 200 Index dipped 0.3% and India’s S&P BSE Sensex 30 Index declined 0.7%. Markets in mainland China remained closed for a holiday.

Fed Leaves Key Rates Unchanged

Stressing the U.S. economy is in good shape, the Federal Reserve on Wednesday left unchanged a key interest rate that influences borrowing costs, but it also said it’s closely monitoring whether the coronavirus spreads beyond China and harms the rest of the world.

The central bank repeated its prior view that the economy is growing at a “moderate rate” while inflation remains low. Still, Fed Chairman Jerome Powell expressed some concern about the coronavirus and said senior officials are monitoring it closely.

“It’s a serious issue. There is likely to be some disruption of activity in China and probably globally,” he told reporters, unprompted, in a press conference after the bank’s first policy-setting meeting of the year. “We’ll just have to wait to see what the effect is globally.”

In a separate move, the Fed raised a special interest rate on banks meant to ensure the smooth functioning of financial markets and help the bank to maintain short-term interest rates at desired levels.

Powell characterized the move as a “small technical adjustment.” The Fed began buying tens of billions of dollars in Treasury bills last fall after a spike in short-term rates in money markets that briefly rang alarm bells on Wall Street.

Some critics contend the Fed Treasury purchases have inflated the value of stocks and other riskier assets, an outcome that could potentially cause financial bubbles that get deflated later in the year when the central bank scales back. Asked about the criticism, Powell said “it’s hard to say at any time with any precision what is affecting markets.”

The Fed cut interest rates three times last year as an insurance policy of sorts to shield the U.S. economy from damages tied to the U.S. trade war with China. The economy stabilized after the rate cuts, helped by a interim trade deal this month with China that eases tensions.

The central bank’s description of the economy was unchanged from six weeks ago: the labor market remained strong, growth was helped by consumer spending, and inflation remained below the 2% target. As a result, the bank voted unanimously kept its benchmark fed funds rate steady in a range between 1.5% and 1.75%.

Powell suggested the Fed is likely to remain on hold for quite some time assuming little change in current trends.

One of the things the Fed is reviewing, he said, is how to incorporate what he called the “new normal” on inflation into the bank’s forecasts. Such a change could make the Fed less aggressive in raising rates than it has been in the past, especially when unemployment falls to very low levels.

He noted that powerful global forces have depressed inflation and kept it much lower than would have been the case a few decades ago.

Following turmoil in the short-term money market in September, the Fed has been lending billions of dollars to the market and is also expanding its balance sheet through $60 billion of Treasury bills. This liquidity had pushed the short-term lending rate below the Fed’s desired range, necessitating the small hike.

The Fed said it will keep lending to the short-term money market via short-term repo operations through April. Previously, it said the program would last through mid-February. The $60 billion per month purchases of T-bills will also last through April.

Some analysts have been calling the balance sheet policy “QE” or quantitative easing and said it has been fueling a bubble in stock markets.

Market Insights 1/28/2020

U.S. stocks regained a good portion of the ground they lost yesterday amid some reassuring consumer sentiment data.

Treasuries were lower after posting big gains yesterday and the U.S. dollar was mostly flat.

The Markets…

The Dow Jones Industrial Average was up 187 points (0.7%) to 28,723

The S&P 500 rose 35 points (1.1%) to 3,278

The NASDAQ added 130 points (1.4%) to 9,270

832 million shares were traded on the NYSE and 2.1 billion shares changed hands on the NASDAQ

WTI oil added $0.34 to $53.48 per barrel and wholesale gasoline rose $0.02 to $1.50 per gallon

The Bloomberg gold spot price was down $7.90 to $1,575.80 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat

Consumer Confidence jumps, as Fed starts two-day meeting

The Conference Board’s Consumer Confidence Index jumped to 131.6 in January, from December’s upwardly-revised 128.2 level, versus the Bloomberg estimate of 128.0. The surge for the index to the highest level since August 2019 came as both the Present Situation Index and Expectations Index of business conditions for the next six months improved solidly. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—increased to 37.4 from the 33.5 level posted in December.

The Richmond Fed Manufacturing Activity Index for January jumped back into a level depicting expansion (a reading above zero), surging to 20 versus forecasts calling for the figure to rise to -3 from December’s -5 level. New orders, shipments and order backlogs all moved into expansion territory.

Treasuries were lower, with the yield on the 2-year note ticking 3 basis point (bps) higher to 1.46%, while the yield on the 10-year note added 4 bps to 1.65% and the 30-year bond yield increased 5 bps to 2.10%.

The conclusion of the Fed’s two-day meeting and accompanying press conference will likely garner the lion’s share of attention tomorrow, but the economic calendar will also yield readings on MBA Mortgage Applications and December Wholesale Inventories, which are expected to increase 0.1% month-over-month.

Mixed day overseas: Europe higher, Asian lower

Global equites were mixed with Europe mostly higher and Asia mostly lower. The euro was flat versus the U.S. dollar, while the British pound and Japanese yen fell. Global bond yields were higher.

The U.K. FTSE 100 Index and Germany’s DAX Index were up 0.9%, France’s CAC-40 Index and Switzerland’s Swiss Market Index advanced 1.0%, Italy’s FTSE MIB Index rallied 2.6%, and Spain’s IBEX 35 Index rose 1.3%.

Japan’s Nikkei 225 Index declined 0.6%. India’s S&P BSE Sensex 30 Index moved 0.5% to the downside. South Korea’s Kospi Index dropped 3.1% and Australia’s S&P/ASX 200 Index fell 1.4%, with both markets returning to action following yesterday’s holiday breaks. Volume remained lighter than usual with markets in China and Hong Kong continuing to be closed for holidays.

Market Insights1/27/2020

U.S. equities were solidly lower and Treasury yields plummeted amid a flight to safety caused by mounting concerns surrounding the deadly coronavirus.

Treasuries, the U.S. dollar and gold were higher on safe-haven flows. Oil prices fell and international equities sold-off even worse than their U.S. counterparts.

The Markets…

The Dow Jones Industrial Average fell 454 points (1.6%) to 28,536

The S&P 500 shed 50 points (1.5%) to 3,245 and the NASDAQ shed 176 points (1.9%) to 9,139

978 million shares were traded on the NYSE and 2.6 billion shares changed hands on the NASDAQ

WTI oil was down $1.05 to $53.14 per barrel and wholesale gasoline fell $0.03 to $1.48 per gallon

The Bloomberg gold spot price rose $5.50 to $1,583.70 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.1% to 97.94

New home sales surprisingly dip, Treasury yields remain under pressure on virus concerns

New home sales declined 0.4% month-over-month in December to an annual rate of 697,000, below the Bloomberg forecast calling for 730,000 units and November’s downwardly-revised 697,000 unit level. The median home price was up 0.5% y/y at $331,400. New home inventory rose to a 5.7 months of supply at the current sales pace from 5.5 months in November. Sales were higher m/m in the West and Midwest but fell in the Northeast and South.

The January Dallas Fed Manufacturing Index improved more than expected, but remained slightly at a level depicting contraction (a reading below zero), rising to -0.2 from -3.2 in December, and versus expectations of an increase to -2.0.

Treasuries were solidly higher, with the yield on the 2-year note declining 6 basis points (bps) to 1.44%, the yield on the 10-year note falling 8 bps to 1.60%, and the 30-year bond rate dropping 8 bps to 2.05%.

Today’s data began a week that will give us a preliminary December read on durable goods orders, January’s Consumer Confidence Index, both reports are scheduled for tomorrow, along with another regional manufacturing report. Later in the week, the calendar will yield the first look (of three) at Q4 GDP, jobless claims, personal income and spending, the Chicago PMI, and the final January University of Michigan Consumer Sentiment Index.

The headlining event will likely come in the form of Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC). The FOMC has made it clear it will likely be on hold for some time, but scrutiny of the FOMC’s statement and customary press conference by Chairman Jerome Powell could ramp up, given the eased trade tensions, signs of global stabilization, subdued inflation, and continued efforts by the Central Bank to calm the overnight lending markets, that have occurred since its last meeting in December.

The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020? The global economy is showing signs of stabilization, but global stocks priced in much of that improvement last year. This could mean weaker global stock market performance in 2020 than in 2019, despite a better economy. Treasury bond yields are likely to move modestly higher during the first half of the year.

Global markets selloff as well

Global equities were broadly lower, as concerns surrounding the deadly coronavirus weighed on sentiment and especially heavily on travel-related issues. The economic calendar showed German business optimism and expectations both unexpectedly declined for this month. The euro and British pound dipped versus the U.S. dollar, while the yen found a strong safe-haven bid. Global bond yields were lower. The selloff came as the busiest week for earnings season in the U.S. looms, as well as this week’s monetary policy decisions from the Fed and Bank of England. Additionally, there is still uncertainty regarding a potential trade showdown between the U.S. and European Union.

The U.K. FTSE 100 Index and Italy’s FTSE MIB Index were down 2.3%, France’s CAC-40 Index and Germany’s DAX Index dropped 2.7%, Spain’s IBEX 35 Index declined 2.0%, and Switzerland’s Swiss Market Index traded 1.6% lower. Japan’s Nikkei 225 Index fell 2.0%. India’s S&P BSE Sensex 30 Index dropped 1.1%. Markets in China, Hong Kong, Australia, and South Korea were closed for holidays.

Coronavirus and Year of the Rat

Even though it is still early in both the Senate impeachment trial and the Q4 2019 earnings reporting period, investor attention has been diverted to a potentially larger issue: the coronavirus.

This pneumonia-like virus was first identified in China and has now spread globally, resulting in dozens of deaths. The initial case was detected on December 31, 2019 and the first U.S. occurrence was reported on January 21, 2020.

What’s more, the number of countries affected continues to expand. Despite these headlines, the World Health Organization recently indicated that the outbreak did not constitute a global public health emergency. However, since the virus has yet to be contained, the impact to global economic growth is difficult to measure and, as a result, is putting pressure on equity prices.

During the week ending January 24, while the S&P 500 posted a week-to-date decline of only 1.0%, eight of the 11 sectors in the S&P Composite 1500 fell in price, along with nearly 75% of the 148 sub-industries; more red ink is expected in the week ahead. History offers some consolation, however, as average U.S equity returns were higher one, two and three months after the first recorded U.S. incidents of SARS, MERS, Ebola and Zika. Yet this selloff is accompanied by elevated valuations and the lack of earnings surprises, since three weeks into the Q4 reporting period, y/y S&P 500 EPS growth for 2019 remained unchanged from the end-of-quarter projection, while the 2020 forecast shrank.

In addition, the S&P 500 recently traded at 19.6X next 12-month forecasts, the highest multiple since the EPS recession of early 2002. Therefore, many Wall Street analysts believe a pullback (5%-10% decline) is likely, as valuations correct while investors conclude that a global recession will not be the outcome of the current health crisis.

On a lighter note, January 24 welcomed the start of the Year of the Rat.

If you believe that equity price performances are influenced by the characteristics associated with each of the 12 animals in the Lunar calendar, you may conclude that the coming 12 months (January 2020 through January 2021) will deliver a good return, but not a great one. That’s because the S&P 500 rose an average of 8.2% in the 10 years of the Rat since 1900 and gained in price 90% of the time — the highest batting average of all 12 animals.

Market Insights 1/24/2020

Equities fell today as concerns over the deadly coronavirus continued to escalate.

A second case was confirmed in the U.S in Chicago from a patient that had recently traveled to the epicenter of the breakout in the Wuhan region of China and a potential third case in North Carolina is being investigated.

The World Health Organization (WHO) has yet to declare a global health emergency. Benefiting from safe-haven flows, Treasuries, gold and the U.S. dollar rose on the day.

The Markets…

The Dow Jones Industrial Average was down 170 points (0.6%) to 28,990

The S&P 500 fell 36 points (1.1%) to 3,290

The NASDAQ was down 88 points (0.9%) to 9,315

871 million shares were traded on the NYSE and 2.6 billion shares changed hands on the NASDAQ

WTI oil was down $1.40 to $54.19 per barrel and wholesale gasoline fell $0.04 to $1.52 per gallon

The Bloomberg gold spot price added $6.60 to $1,578.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.2% to 97.88

For the week, the Dow fell 1.2%, the S&P 500 shed 1.2% and the NASDAQ was down 0.8%

With Q4 earnings season shifting into high gear, of the 86 S&P 500 companies that have reported results thus far, roughly 66% have topped revenue forecasts and nearly 73% have bested profit projections, per data compiled by Bloomberg. Overall y/y revenue growth is tracking at about 3.3%, while earnings expansion compared to the prior year is modest, coming in at roughly 0.8%.

Manufacturing growth remains and services sector output continues to grind higher

The preliminary Markit U.S. Manufacturing PMI Index for January dipped to 51.7 from December’s unrevised 52.4 figure, below the Bloomberg consensus estimate calling for a slight improvement to 52.5. The preliminary Markit U.S. Services PMI Index showed growth increased more than expected this month for the key U.S. sector, rising to 53.2 from December’s 52.8 figure, above forecasts of 53.0. Readings above 50 for both indexes denote expansion.

Treasuries were higher, with the yield on the 2-year note declining 2 basis points (bps) to 1.49%, the yield on the 10-year note shedding 5 bps to 1.69% and the 30-year yield dropping 4 bps to 2.14%.

Overseas markets higher

Closing before the U.S. turned decisively lower, markets in Asia and Europe were mostly higher on the day. Yesterday’s announcement from the European Central Bank (ECB) that it will conduct a strategic review of its monetary policy for the first time since 2003 continued to support sentiment, as inflation and economic growth in the region have failed to meaningfully recover even with the central bank’s highly-accommodative measures.

The euro and British pound saw some pressure versus the U.S. dollar, while the yen benefited from safe-haven flows. Global bond yields were lower.

The U.K. FTSE 100 Index was up 1.0%, France’s CAC-40 Index rose 0.9%, Germany’s DAX Index advanced 1.4%, Italy’s FTSE MIB Index gained 1.1%, Spain’s IBEX 35 Index traded 0.5% higher, and Switzerland’s Swiss Market Index increased 0.3%.

Japan’s Nikkei 225 Index ticked 0.1% higher. Hong Kong’s Hang Seng Index gained 0.2% and Australia’s S&P/ASX 200 Index finished little changed. India’s S&P BSE Sensex 30 Index continued to recover from a recent bout of weakness, rising 0.6% to post a second-straight session in the green. Markets in mainland China and South Korea were closed for holidays.

Stocks down for the week as virus outbreak overshadows data

U.S. stocks finished lower on the week with earnings season heating up and delivering some upbeat results from the technology sector, and global economic data continuing to keep recession concerns in check. However, an outbreak of the coronavirus in China that spread to the U.S. appeared to overshadow the upbeat earnings and economic data, as it put several cities in China on lock-down and threatened the key Chinese Lunar New Year celebration that starts tomorrow and is a historically active event for the consumer.

The U.S. dollar nudged higher but remained in the downtrend that started in early October and gold moved back to near multi-year highs. The defensively-natured utilities sector led to the upside, along with the tech sector on the aforementioned earnings results, while energy issues fell as oil prices dropped, and financials saw some pressure amid a slide in Treasury yields.

Although the busiest week for Q4 earnings season is on next week’s horizon and will likely dominate the market’s attention, the economic calendar will also yield some key reports that could have a say on the moves in the markets.

New home sales will get the ball rolling, followed by the preliminary December read on durable goods orders, January’s Consumer Confidence Index, the first look (of three) at Q4 GDP, jobless claims, personal income and spending, the Chicago PMI, and the final January University of Michigan Consumer Sentiment Index.

The headlining event will likely come in the form of the midweek monetary policy decision from the Federal Open Market Committee (FOMC). The FOMC has made it clear it will likely be on hold for some time, but scrutiny of the FOMC’s statement and customary press conference by Chairman Jerome Powell could ramp up, given the eased trade tensions, signs of global stabilization, subdued inflation, and continued efforts by the Central Bank to calm the overnight lending markets, that have occurred since its last meeting in December.

Market Insights 1/23/2020

U.S. equities bounced off the lows of the day to finish mixed and nearly unchanged, as worries over the spread of the coronavirus that has put several Chinese cities on lockdown was quelled somewhat by the World Health Organization.

Treasury yields fell, and crude oil prices were lower, while the U.S. dollar and gold gained ground.

The Markets…

The Dow Jones Industrial Average fell 26 points (0.1%) to 29,160

The S&P 500 Index was up 4 points (0.1%) to 3,326

The Nasdaq Composite added 19 points (0.2%) to 9,402

In heavy volume, 942 million shares were traded on the NYSE and 2.4 billion shares changed hands on the NASDAQ

WTI crude oil dropped $1.15 to $55.59 per barrel and wholesale gasoline was down $0.02 at $1.56 per gallon

The Bloomberg gold spot price gained $3.51 to $1,562.29 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.69

Leading Indicators dip, jobless claims tick higher

The Conference Board’s Index of Leading Economic Indicators (LEI) for December was 0.3% lower month-over-month, compared to the Bloomberg projection of a 0.2% decrease and November’s upwardly-revised 0.1% gain. This was the fourth month out of five that the index declined as strength in stock prices and consumer expectations were more than offset by declines for manufacturing new orders, building permits and jobless claims.

Weekly initial jobless claims rose by 6,000 to 211,000, versus the Bloomberg estimate of 214,000, with the prior week’s figure being revised higher by 1,000 to 205,000. The four-week moving average declined by 3,250 to 213,250, while continuing claims fell by 37,000 to 1,731,000, south of estimates of 1,756,000.

Treasuries rose, as the yield on the 2-year note decreased 1 basis point to 1.50%, while the yields on the 10-year note and the 30-year bond fell 4 bps to 1.73% and 2.18%, respectively.

Tomorrow’s economic calendar will offer the preliminary Markit Manufacturing and Services PMIs for January, with both measures expected to tick higher to respective levels of 52.5 and 52.9, with a reading above 50 for both indexes denoting expansion in activity.

Europe and Asia mostly lower on virus fears

European equities were mostly lower, with the global markets remaining skittish regarding the spreading of the coronavirus, which has shutdown public transportation in several Chinese cities, while the European Central Bank (ECB) left its monetary policy stance unchanged as expected. As inflation has not responded to highly-accommodative policy from the ECB and an economic recovery has been elusive, the central bank said for the first time since 2003, it will conduct a review of its policy strategy. As well, a shift in focus of the trade front between the U.S. and Europe may have pressured sentiment. The euro saw some pressure following the ECB’s decision and the British pound also lost ground versus the U.S. dollar, while bond yields in the region fell.

The U.K. FTSE 100 Index and Germany’s DAX Index fell 0.9%, France’s CAC-40 Index and Switzerland’s Swiss Market Index were down 0.7%, and Spain’s IBEX 35 Index lost 0.6%, while Italy’s FTSE MIB Index was little changed.

Japan’s Nikkei 225 Index traded 1.0% lower, with the yen gaining some ground amid the global market risk aversion, while a report showed Japan’s December exports fell more than expected. Australia’s S&P/ASX 200 Index declined 0.6%, despite some stronger-than-expected job growth data from the nation for last month. South Korea’s Kospi Index decreased 0.9%, but India’s S&P BSE Sensex 30 Index bucked the trend, rising 0.7% to snap a five-day losing streak.

Random Thoughts

More than two weeks into the Q4 2019 EPS reporting period, and following optimism that was sparked by stronger-than-expected bank results, enthusiasm appears to have faded as y/y growth for 2019 remains unchanged from the end-of-quarter projection of 0.4%, while the 2020 forecast slipped slightly to 7.8%.

Maybe it is too soon to see upward revisions to next 12-month (NTM) EPS estimates that would justify the S&P 500’s 13% price surge in the past three months on an expected ramp-up in EPS growth.

Yet the 500 now trades at 19.6X NTM forecasts, the highest multiple since the EPS recession of early 2002, triggered by the EPS growth vacuum of the 2000-’02 bear market.

Market Insights 1/21/2020

Equities around the world sold off a bit today on the heels of a reduction in the global growth outlook from the International Monetary Fund and confirmation from the Center for Disease Control of the first U.S. case of coronavirus.

The disease has already sickened hundreds of people in the Wuhan region of China and killed six.

Interest rates around the world fell amid the weakness in equities. The U.S. dollar was flat as safe-haven flows likely offset the pressure from substantially lower Treasury yields. Crude oil prices and gold also finished lower.

The Markets…

The Dow Jones Industrial Average fell 152 points (0.5%) to 29,196

The S&P 500 was down 9 points (0.3%) to 3,321

The NASDAQ shed 18 points (0.2%) to 9,371

1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the NASDAQ

WTI oil shed $0.20 to $58.38 per barrel and wholesale gasoline was flat at $1.64 per gallon

The Bloomberg gold spot price shed $2.40 to $1,557.90 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat

Treasury yields see pressure as economic calendar remains on break

Treasuries were higher and the curve flattened, with the yield on the 2-year note decreasing 3 basis points (bps) to 1.53% and a 5 bps decline on the yields of the 10-year note and the 30-year bond to 1.77% and 2.23%, respectively.

The economic calendar was quiet today following yesterday’s holiday break. It will heat up tomorrow, delivering more housing data in the form of existing home sales, which will be followed by Markit’s preliminary January reads on manufacturing and services activity, while jobless claims will likely continue to garner attention and the Leading Index will bring a timely read on the economy.

The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020? The global economy is showing signs of stabilization, but global stocks priced in much of that improvement last year. This could mean weaker global stock market performance in 2020 than in 2019, despite a better economy.

Global Markets struggle along with U.S.

European equities finished mixed and Asian markets were lower. A negative tone was set by a global growth forecast reduction out of the International Monetary Fund (IMF), while a deadly virus outbreak in China appeared to cause some uneasiness in the markets.

The euro was flat versus the dollar and the British pound rose. The yen led the pack today, boosted by safe-haven flows and after the Bank of Japan kept its monetary policy stance unchanged, as was anticipated. Global bond yields were lower.

The U.K. FTSE 100 Index, France’s CAC-40 Index and Spain’s IBEX 35 Index all declined 0.5%, and Italy’s FTSE MIB Index fell 0.7%, while Germany’s DAX Index ticked 0.1% higher and Switzerland’s Swiss Market Index gained 0.3%.

China’s Shanghai Composite Index dropped 1.4% and South Korea’s Kospi Index traded 1.0% to the downside. Japan’s Nikkei 225 Index declined 0.9%. Australia’s S&P/ASX 200 Index dipped 0.2% and India’s S&P BSE Sensex 30 Index decreased 0.5%.