Market Insights 2/7/2020

U.S. equities fell in the final session of the week after posting four-straight days of increases and notching solid weekly gains, as investors appeared to step back to re-examine the rally, while also contemplating how the spreading coronavirus, which upended the markets last week, may impact the global economy.

Treasury yields were lower, paring this week’s rebound, and the U.S. dollar was slightly higher, while crude oil prices were mixed and gold gained modest ground. Meanwhile, Europe and Asia finished lower.

The Markets…

The Dow Jones Industrial Average tumbled 277 points (0.9%) to 29,103

The S&P 500 Index was down 18 points (0.5%) to 3,328

the Nasdaq Composite declined 52 points (0.5%) to 9,521

In moderate volume, 858 million shares were traded on the NYSE and 2.2 billion shares changed hands on the NASDAQ

WTI crude oil lost $0.63 to $50.32 per barrel and wholesale gasoline added $0.03 to $1.53 per gallon

The Bloomberg gold spot price increased $4.06 to $1,570.72 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.2% to 98.69

Markets were solidly higher for the week, as the DJIA gained 3.0%, the S&P 500 Index rose 3.2% and the Nasdaq Composite jumped 4.0%

Labor report well above expectations

Non-farm payrolls rose by 225,000 jobs month-over-month in January, compared to the Bloomberg forecast of a 160,000 increase. Excluding government hiring and firing, private sector payrolls increased by 206,000, versus the forecasted gain of 150,000. The job growth was led by employment gains in construction, health care, professional and business services, and leisure and hospitality, while employment declined in manufacturing. The upward revision to the prior two months was 7,000. The labor force participation rate ticked higher to 63.4% from December’s 63.2% rate.

The unemployment rate inched higher to 3.6% from December’s 3.5% rate, where it was forecasted to remain, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase and compared to December’s unrevised 0.1% gain. Y/Y, wage gains were 3.1% higher, versus estimates of a 3.0% increase. Finally, average weekly hours remained at 34.3, in line with estimates.

Treasuries were higher, as the yield on the 2-year note was down 5 basis points at 1.40%, the yield on the 10-year note lost 6 bps 1.58%, and the 30-year bond rate was 7 bps lower at 2.05%.

Europe and Asia lower following string of gains

European equities finished lower, with auto stocks leading the way, as investors assessed the past rally that had taken the STOXX 600 Index to new highs, while attention turned to what may be the economic ramifications of the coronavirus outbreak. Economic news in the area didn’t help matters, as industrial production in both Germany and France plunged in December and were well short of expectations, while retail sales in Italy nudged higher.

The U.K. FTSE 100 Index and Germany’s DAX Index were down 0.5%, France’s CAC-40 Index, Italy’s FTSE MIB Index and Switzerland’s Swiss Market Index ticked 0.1% lower, and Spain’s IBEX 35 Index was flat.

Stocks in Asia were mostly lower, after posting three sessions of widespread gains, after China delayed the release of its January trade data, and amid concerns of the economic impact of the coronavirus outbreak across the region. The Chinese trade data that was scheduled for release today was highly anticipated after yesterday’s announcement from the Asian nation that it will halve tariffs on hundreds of U.S. imports.

The Hong Kong Hang Seng Index fell 0.3%, with gaming stocks seeing pressure as casinos in the popular Macao destination were temporarily closed during the ramp-up in the coronavirus outbreak. Japan’s Nikkei 225 Index declined 0.2% amid some strength in the yen. South Korea’s Kospi Index decreased 0.7% with car makers seeing pressure amid worries of supply disruptions due to shuttered factories in China. China’s Shanghai Composite Index bucked the trend, bouncing off the lows of the day to finish 0.3% higher.

Stocks recover solidly from a two-week decline to hit fresh record highs

U.S. stocks posted solid weekly gains, notching fresh record highs along the way, as the heightened anxiety over the spreading of the coronavirus that stymied the global markets over the past two weeks tempered. Some upbeat economic data lent a hand, while positive developments on the U.S.-China trade front added to the mix. The jobs market remains strong, as Friday’s stronger-than-expected labor report followed a drop in jobless claims and a robust ADP Employment Change Report.

Next week, earnings season will move into the latter stages, while the economic calendar will also be robust, with reports scheduled for release to include the NFIB Small Business Optimism Index, the JOLTS Job Openings report, business inventories and the Fed’s industrial production and capacity utilization report. The first look at the January inflation landscape will come in the form of the Consumer Price Index (CPI) and the Import Price Index, and the all-important consumer will be on display with reads on retail sales and the preliminary University of Michigan Consumer Sentiment Index slated for release.