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Investors Flee Stocks, New York’s First Coronavirus Appears in Queens

Weekly Update – January 31, 2020

  • Stock prices retreated on the week; volatility spiked as the coronavirus spread outside China and the death toll rose. The World Health Organization declared the outbreak a “public health emergency”; in macabre situational irony, New York’s first coronavirus case appeared in Queens. Fearing the outbreak would disrupt global supply chains and hinder growth, investors fled stocks; the S&P 500 posted its worst week since August 2019.
  • The flight to perceived “safe-haven” assets lifted government bond prices and drove yields down. U.S. Treasury yields sank to three-month lows on Friday as investors bet that economic deceleration would force the Federal Reserve to lower interest rates. The yield on the widely watched ten-year U.S. T-note dropped on the week from 1.68% to 1.52%. Oil prices also slumped on global growth worries, whereas gold prices advanced. The U.S. dollar fell against a basket of major currencies.
  • With 45% of S&P 500 companies reporting fourth-quarter results, 69% have exceeded earnings per share expectations, while 64% have beaten revenue expectations. As of January 31, 2019, Refinitiv estimated the S&P 500 index’s fourth-quarter earnings growth rate at 1.1% and its 12-month forward P/E ratio at 18.6. Coca Cola, Hershey and Tesla impressed, whereas DuPont de Nemours, Hess Corporation and Sherwin-Williams disappointed.
  • U.S. GDP grew at an annual rate of 2.1% in 4Q19, unchanged from 3Q19 and beating estimates of 1.9%, though full-year growth of 2.3% was the slowest annual pace since 2016. Personal consumption contributed 1.2%, less than in the previous two quarters.
  • December U.S. new home sales fell 0.4% compared to November, to a seasonally adjusted annual rate of 694,000. It was the lowest rate in five months, marking the third straight monthly decline.
  • At its January meeting, the Federal Open Market Committee (FOMC) held the benchmark fed funds rate steady at 1.50–1.75%. Though market calls have intensified for the Fed to cut rates in 2020, the FOMC statement indicated the Committee still sees little reason to do so. The policy statement was nearly unchanged from last time, reiterating that job gains had been solid, and inflation remained below the Fed’s 2% target.

CPWM Weekly Market Monitor (2020.01.31)

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