STOCKS UP FOR SECOND WEEK IN A ROW AS THE LARGE TECH NAMES LEAD AND THE CORONAVIRUS DOMINATES HEADLINES

Weekly Market Update — February 17, 2020

• U.S. equity markets continued their record–setting ways, moving up for the second week in a row, despite increasing worries about the coronavirus
• As seems to be the norm, the technology–laden NASDAQ was out in front with a weekly gain of 2.2%, which puts its YTD return at an incredible 8.5%
• The smaller–cap Russell 2000 followed with a healthy 1.9% return, ahead of the 1.6% return of the large-cap S&P 500 and the 1.0% return of the mega–cap DJIA
• The week\’s gains were driven by the huge tech companies, despite fears that the coronavirus is starting to impact their supply chains
• All 11 S&P 500 sectors finished green, and 4 of the 11 were up significantly
• Real Estate leapt 4.8% and Consumer Discretionary, Utilities and Technology sectors rose between 2.3% and 2.6%
• The Energy sector was positive this week with a gain of 0.3%, driven in part by a large 3% increase in the price of WTI crude to almost $52/barrel
• U.S. Treasuries finished the week by barely moving, as the 2–year yield increased a few basis points to 1.42% and the 10–year remained unchanged at 1.58%
• The U.S. Dollar Index advanced 0.4% to 99.12

Weekly Market Performance

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Cautiously Optimistic About the Coronavirus

Stocks moved up for the second week in a row and bond yields remained unchanged, suggesting that investors are cautiously optimistic with respect to the coronavirus and its containment. The week\’s gains pushed NASDAQ and the large–cap U.S. indices to record highs as technology stocks continue to lead the market, especially NASDAQ.

But China\’s Global Supplier Label is Worrisome

As the coronavirus continues to spread around the world, investors are still nervous that the Chinese virus will negatively impact markets in the U.S. and around the globe because China is such an integral part of the global supply chain.

But beyond China as the world\’s supplier, the flip side of China\’s economy is under pressure too – that of the world\’s largest consumer group based on sheer numbers. Although the U.S. has the world’s largest consumer market in terms of spending dollars, China is number two. And China is the world\’s fastest growing consumer market. And today, China\’s economy accounts for about 16% of the world\’s GDP.

Car plants across China have been ordered to remain closed following the Lunar New Year holiday, and this is impacting the world\’s largest global brands:

• Toyota
• Volkswagen
• Hyundai
• General Motors

And not only can these car makers not resume operations in the world\’s largest car market, but these are also the top 4 car makers in the entire world.

Making matters worse is that China is a massive supplier of parts to auto plants around the world. In fact, the UN estimates that China shipped nearly $35 billion in auto parts out last year, with about $20 billion being sent to the U.S. alone.

Another Fed Cut, Maybe Two Cuts?

In congressional testimony mid–week, Chairman Powell reported that that the Fed was monitoring the coronavirus as the number of reported cases is skyrocketing.

Powell\’s remarks were relatively subdued and commented that it was “just too early to say” how the virus might impact the global economy in 2020. Fed–interpreters, however, were quick to interpret Powell\’s remarks that the Fed would cut rates in the coming months. So much so, that according to the CME Group, Fed–guessers were betting that there was an 82% chance of a federal funds rate cut in 2020 and a 46% chance that there would be two rate cuts in 2020.

Mixed Economic Data

The week\’s saw mixed economic data. Early in the week, the Labor Department release data signaling that openings fell significantly in December and reached their lowest level in two years.

On the positive side, however, the Labor Department then reported on Thursday that weekly jobless claims remained near historical lows.

Late in the week, it was reported that Retail Sales were up 0.3% in January.

Around the World

• European shares rose to record highs as the pan–European STOXX Europe 600 Index finished the week up 1.4%
• Germany\’s DAX Index rose 1.7%
• France\’s CAC–40 Index gained 0.7%
• The Nikkei 225 Stock Average (Japan) declined 0.6%
• The large–cap CSI 300 Index (China) gained 2.4%
• The Shanghai Composite index rose 1.4%

Sources

dol.gov; bea.gov; cmegroup.com; bls.gov; census.gov; standardandpoors.com; factset.com; nyse.com; msci.com; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com