Economic Update 2-10-2020

• Economic data for the week featured an unexpected rebound in manufacturing sentiment, continued strength in non-manufacturing/services sentiment, as well as an upside surprise for the employment situation report for January.
• Global equity markets recovered last week, with progress noted on virus containment as well as financial stimulus from the Chinese government. Bonds lost ground as investors moved back into risk assets, pushing interest rates higher. Commodities were mixed, with crude oil prices seeing continued pressure from demand concerns and high inventories.

U.S. stocks bounced back last week, with the S&P earning its strongest weekly gain in over six months—due to hopes for containment and a possible vaccine for the mysterious Chinese coronavirus. By the end of the week, China announced it would cut tariffs on $75 bil. of U.S. goods in mid-February, which also raised market spirits. Conditions remained choppy, however, to end the week.

By sector, a reversal of fortunes took place with every asset other than utilities ending in positive ground for the week. Technology, materials, communications and health care all ended with gains close to or over 4%. Leaders on the week included Microsoft and recent darling Tesla, which earned exceptional gains in recent weeks upon hopes for an upward swing in sales.

Foreign stocks recovered by several percent last week, despite the headwind of a strong dollar. The headline global story about the coronavirus has taken the place of trade uncertainty as the key worry about what has the best chances for derailing already-meager global growth, with sentiment tracking that of U.S. markets largely. Earnings results also improved in Europe, in addition to dovish comments from the ECB alluding to a continued need for accommodative policy.

Upon reopening after the Chinese New Year, the Shanghai stock market fell by nearly -8% on Monday, the worst day in over four years, upon the coronavirus impact concerns. The Chinese have been injecting short-term stimulus/liquidity/lending capacity into the system quickly in order to stabilize concerns, which appear to have been effective thus far.

U.S. bonds fell back a bit, with interest rates rising up to 10 basis points along the treasury curve, as investors revisited risk assets last week. High yield bonds performed best, with gains of nearly a percent, followed by investment-grade corporates. Treasury indexes, with little coupon cushion to help returns, lost ground on net. The dollar rose a percent and a half, which punished foreign developed market sovereign bonds, while emerging bonds were little changed.

Commodities were mixed last week, with no help from the sharply stronger dollar. While agricultural and industrial metals contracts rose (with an unsurprising impact from eased trade conditions with China), precious metals and energy fell back. The price of crude oil declined by over -2% to a shade over $50/barrel, as threatened Chinese demand due to the coronavirus and a continued global oversupply has created more downward than upward pressure as of late.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

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