Economic Update 2-25-2020

• On a shortened holiday week, economic data included stronger regional manufacturing results, a rebound in the broader measure of leading economic indicators, and decent housing data.
• U.S. and foreign equity markets fell back last week as the economic impact of the coronavirus again negatively weighed on market sentiment. However, bonds fared well, as investors sought safety. Commodities were mixed, featuring stronger results for precious metals and the energy sector.

U.S. stocks fell last week, as positive sentiment from the prior week about containment efforts of the coronavirus, and resulting new record highs for the S&P 500 and Nasdaq, turned to worries over the economic and earnings impact globally. Every sector ended in the red, with defensive utilities losing the least, about a tenth of a percent; technology stocks fell over -2% with assumed supply chain effects from the virus seeping into earnings. Real estate fared flatly also, along with defensive assets.

On Saturday, Feb. 22, the Nevada caucuses began, which was the third step in the Democratic primary process. While the overall delegate count is small for these early primaries, they’ve shown the most value as early momentum builders for upcoming key dates, such as Super Tuesday, where a significant percentage of convention delegates are picked.

Foreign stocks performed largely in line with U.S. equities, with additional trickle-down concerns from the coronavirus, although manufacturing data in the eurozone improved a bit—raising prospects for bottoming and a recovery.  Japanese stocks were held back by a far sharper-than-expected decline in GDP for the prior quarter, due to weather impacts and higher taxes. The stronger dollar also weighed on returns, as well in as nations tied to exports, such as South Korea and Brazil. China has been conducting significant monetary easing, which began before the coronavirus took hold, but included additional rate cuts and other measures last week—resulting in sharp gains in domestic markets. Military tensions between Turkey and Russia over Syria also contributed to mixed emerging market results.

U.S. bonds ticked higher along with investors flows towards safety, with governments outperforming credit, as expected. High yield and floating rate lagged with minimal returns for the week. Foreign bonds fared well in local terms for both developed and emerging markets, but lagged when translated back to account for a stronger dollar.

Commodities were mixed to slightly higher, despite the stronger dollar. Precious metals rose by several percent as investors sought safety, in addition to a less dramatic recovery for energy. The price of crude oil regained 2% to near $54/barrel.

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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