Last week, corporate earnings, and China’s announcement of a 50% tariff reduction on some U.S. products, provided momentum amidst coronavirus uncertainties. The Nasdaq (4.04%) led the major indices for the week followed by the S&P 500® Index (3.17%), the Dow Jones Industrial Average (3.00%) and the Russell 2000® Index (2.65%). The January employment report, 225,000 jobs added, far exceeded expectations of 161,500. Wage growth remains modest: 0.2% for the month for a 3.1% (+0.1%) annual increase. Unemployment rose 0.1% to 3.6% as more individuals entered the workforce; the labor force participation rate rose 0.2% to 63.2%, its highest level since June of 2013.
The coronavirus outbreak has created global economic uncertainty. Several prospects for treatment (as reported by a University in China), and a vaccine (as reported by scientists in the United Kingdom) may offer some promise to curb the virus’ spread. China reports declines in manufacturing, exports, imports and demand for oil; China may well experience a decline in GDP this year. The U.S. economy continues to perform well: both the January ISM manufacturing and non-manufacturing Indices exceeded expectations. Elsewhere, however, other countries including Germany, France, Taiwan and Japan reported unexpected declines in industrial production, household spending or exports.
About two thirds of the companies in the S&P 500® have reported earnings; the results continue the recent pattern of exceeding modest expectations. The market rewarded a diverse mix of companies including Allegheny Technologies, Cerner, Coty, Cardinal Health and Ralph Lauren which exceeded expectations for revenue and earnings growth. Corporate commentaries are generally upbeat although tempered by the two uncertainties: the consequences of the coronavirus, and the potential opportunities created by the U.S. China trade agreement. On Thursday, China announced that, as of February 14th, it would halve the existing tariffs on $75 billion in U.S. goods. On Friday, President Trump reported that he and President Xi spoke by phone; President XI reaffirmed China’s purchase commitments in the phase one agreement.
The market narrative will likely continue as the markets respond to the latest news on earnings and the coronavirus. Not surprisingly, the coronavirus scare is attracting investors to U.S. Treasuries; yields on the benchmark 10-year have fallen more than 40 basis points this year. Volatility will continue to be a factor; overall investor sentiment, though, should remain positive barring any new coronavirus developments.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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