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Stocks and Yields Decline from Coronavirus Concerns and Weak Global Data, Gold Benefits

Weekly Update – February 21, 2020

  • The major U.S. stock indexes ended down for the week. The coronavirus was the high-profile worry, as flash PMIs telegraphed early warnings that the outbreak was hindering the global economy. Stocks retreated as bonds and gold advanced, disrupting a recent counter-trend: investors had been buying “risk” and “safe” assets at the same time as they confronted a murky economic outlook.
  • U.S. Treasury yields declined across the curve; the 30-year bond fell near record lows to 1.92% and the ten-year note dropped to 1.47%. The two-to-ten-year spread further tightened. Gasoline and distillate supplies fell, driving up oil prices. Gold continued to benefit from the risk-off trade. The U.S. dollar index declined on Friday but ended the week slightly up.
  • With 87% of S&P 500 index companies reporting 4Q19 results, 71% have exceeded earnings per share expectations, while 65% have beaten revenue expectations. As of February 21, 2020, Refinitiv estimated the S&P 500’s 4Q19 earnings growth rate at 3.2% and its 12-month forward P/E ratio at 19.2. Advance Auto Parts, Domino’s Pizza and Zillow impressed; whereas Apple, Six Flags and Walmart disappointed.
  • February IHS Markit flash Manufacturing PMI declined 1.1 points to 50.8. The rate of production new orders was down for the first time in over a decade. Demand, delivery delays and business confidence were all weaker. Flash Services PMI fell four points to 49.4, falling into contraction territory.
  • By contrast, February regional manufacturing surveys outstripped estimates. The Philadelphia Federal Reserve survey soared to 36.7, from January’s 17 reading. The Empire State survey jumped to 12.9 from 4.8. Both surveys reported strong gains in new orders and shipments but pointed to easing employment and capital expenditures.
  • January existing home sales decreased 1.3% to a seasonally adjusted annual rate of 5.46 million. Year-over-year sales rose 9.6%. Housing starts fell 3.6% to 1.567 million, building permits rose 9.2% to 1.551 million. The February NAHB Housing Market index fell one point to 74; current sales, six month expectations and traffic declined.
  • Weekly initial jobless claims totaled 210,000 as of February 15, up from 206,000 the prior week. The four-week average dropped by 3,000 to 209,000.

CPWM Weekly Market Monitor (2020.02.21)

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