Investment Commentary – February 11, 2020

Year to Date Market Indices as of Market Close February 11, 2020
• Dow 29,276(2.59%)
• S&P 3,357 (3.93%)
• NASDAQ 9,638 (7.43%)
• Gold $1,571 (3.38%)
• Oil $50.05 (-18.25%)
• Barclay Bond Aggregate (1.95%)
• All World Index (2.32%)
• Fed Funds Rate 1.75 (Three -0.25 rate cuts in 2019)
• US Real GDP Growth 2.1 Q4/2019

S&P, Nasdaq eke out record closes as coronavirus worries ease

The S&P 500 and Nasdaq notched record closes on Tuesday, but the Dow finished virtually unchanged. Investors attributed optimism surrounding equities to signs of a slowdown of new cases of COVID-19 in China, while the top Federal Reserve chief said the central bank is monitoring the economic impact of the viral outbreak.
What did the major indexes do?
The Dow Jones Industrial Average DJIA, +0.00% edged 0.48 point lower to close at 29,276.34 after setting an intraday record of 29,415.39 earlier in the session. The S&P 500 SPX, +0.17% advanced 5.66 points, or 0.2%, to 3,357.75, and the Nasdaq Composite Index COMP, +0.11% rose 10.55 points, or 0.1%, to finish at 9,638.94, with both indexes notching all-time closing highs.

What drove the market?

Federal Reserve Chairman Jerome Powell said the central bank is monitoring the impact of the novel virus, the disease caused by a new strain of coronavirus that emerged in Wuhan, China, in late 2019, on global economic growth. However, he added that the U.S. economy appeared resilient to overseas headwinds.

Investors have attributed the bullish trading in stocks to hopes that the Fed would ease policy if a global economic shock from the coronavirus made its way to U.S. shores.

“With fundamentals strong, a robust employment situation, and inflation on track, Powell’s cautiously optimistic stance isn’t too surprising, especially since coronavirus fears and trade tensions are at bay,” wrote Mike Loewengart, vice president of investment strategy at E-Trade, in an email. “What remains to be seen is the lasting effect of the coronavirus on global growth, which is already tepid.”

China’s National Health Commission on Tuesday said in its daily update that 108 deaths were reported in the previous 24 hours, bringing the total to 1,016 deaths in mainland China since the disease emerged in December. The number of new, confirmed cases fell to 2,478 from 3,062 a day earlier, bringing the total to 42,638 on the mainland, including some of whom have since recovered and been released from treatment.

Trump criticizes Powell as Fed chair testifies before Congress

President Trump took aim at Federal Reserve Chairman Jerome Powell, renewing his criticism of the head of the central bank as Powell testified before Congress on Tuesday.

“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher,” Trump wrote in a tweet. “As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports.”

Powell was testifying before the House Financial Services Committee. Giving the Fed’s semiannual monetary report to Congress, Powell said Tuesday that the Fed is content with where interest rates are, suggesting that no further rate cuts are being contemplated unless economic conditions were to change significantly. Many analysts say the Fed could keep rates unchanged this year, although some think it will feel compelled to cut rates at least once.

The central bank lowered the benchmark rate three times last year (after having raised it four times in 2018), though Trump wasn’t satisfied, frequently saying the cut wasn’t enough. The current rate is at a range between 1.5 percent and 1.75 percent.

Headlines around the Web

Positive catalysts: Among the factors that fueled the week’s rally was a move by China to slash tariffs on U.S. imports, in line with a recent phase one trade deal. In addition, quarterly earnings generally met or exceeded analysts’ expectations and initial fears about the economic impact from the coronavirus outbreak eased somewhat.

Market rebound: On the heels of a 2% decline the previous week, stocks roared back to their biggest gain in eight months, with the S&P 500 and the Dow climbing more than 3% and the NASDAQ adding 4%. The indexes set new record highs on Thursday but pulled back on Friday.

Jobs momentum: U.S. employers added 225,000 jobs in January, exceeding economists’ expectations and topping 2019’s monthly average gain of 175,000. Although the unemployment rate rose to 3.6% from 3.5%, the small increase was attributed largely to more Americans re-entering the workforce to look for jobs.

Earnings on the bubble: With fourth-quarter reports in from nearly two-thirds of the companies in the S&P 500, it remained a close call as to whether earnings will rise slightly or decline compared with the same quarter a year earlier. According to FactSet, the earnings growth rate was 0.7%, based on actual results as of Friday and expectations for companies that haven’t yet reported.

Bond price rally eases: Demand for U.S. government bonds eased in the wake of a recent surge that sent prices higher and yields dropping to the lowest levels in five months. After falling to 1.52% at the end of the previous week, the yield of the 10-year U.S. Treasury bond rose to 1.58%—still far below its year-end 2019 yield of 1.92%.

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The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.