Investment Commentary –February 6, 2020

Year to Date Market Indices as of Market Close February 5, 2020
• Dow 28,807 (0.94%)
• S&P 3,297 (2.07%)
• NASDAQ 9,467 (5.52%)
• Gold $1,557 (2.49%)
• Oil $50.95 (-16.78%)
• Barclay Bond Aggregate (1.95%)
• All World Index (1.05%)
• Fed Funds Rate 1.75 (Three -0.25 rate cuts in 2019)
• US Real GDP Growth 2.1 Q4/2019

Nasdaq clinches record close as stock market rebounds from coronavirus selloff

Tesla shares up nearly 112% year-to-date

U.S. stocks finished sharply higher Tuesday as investors weighed stimulus efforts by the People’s Bank of China and actions by Beijing to combat the economic impact of a deadly Asian virus that has claimed hundreds of lives and infected more than 20,000 people.

The tech-heavy Nasdaq benchmark carved out a new closing record, aided by a surge in shares of Tesla Inc., TSLA, -6.09% which have experienced a parabolic climb in the past few trading sessions.

How did stock benchmarks fare?

The Dow Jones Industrial Average DJIA, +1.44% rose 407.82 points, or 1.4%, to finish at 28,807.6, the S&P 500 index SPX, +1.50% gained 48.67 points, or 1.5%, to end at 3,297.59. The Nasdaq Composite Index COMP, +2.10% advanced 194.57 points, or 2.1%, to close at a record 9,467.97, surpassing its previous closing high on Jan. 23.

All three major benchmarks took back the ground lost during Friday’s coronavirus-related rout.

What drove the market?

The coronavirus has infected more than 20,000 people in China and claimed 465 lives, according to China’s National Health Commission. The People’s Bank of China offered funds in the overnight market to the tune of 500 billion yuan ($71 billion) on Tuesday to ease the economic stress of containing the viral outbreak, according to The Wall Street Journal. This follows an initial injection of 1.2 trillion yuan into the Chinese banking system on Monday.

Markets have been fairly upbeat on the back of efforts by the PBOC to contain the virus and its attempts to stanch economic fallout for China.

Market News

Coronavirus fears: The growing global toll from the coronavirus weighed on stocks for the second week in a row. The World Health Organization on Thursday declared the virus a public health emergency of international concern. On Friday, some U.S. airlines began canceling flights to China, where the outbreak is believed to have originated.

Mixed month: The S&P 500 slipped 0.2% on a price basis for January, the Dow fell 1.0%, and the NASDAQ posted a 2.0% gain, lifted in part by strong earnings from technology companies. The market’s fast start to 2020 reversed course entering the closing days of the month, and the Cboe Volatility Index jumped more than 36% in January.

U.S. slowdown: The government’s initial estimate of fourth-quarter U.S. GDP growth was 2.1%, a rate that extends a recent run of modest quarterly gains. For all of 2019, the growth rate was 2.3%—down from 2.9% the previous year.

Steady Fed: As expected, the U.S. Federal Reserve on Wednesday kept interest rates unchanged, marking the second straight meeting with no changes following three consecutive rate reductions in 2019. The Fed committee vote was unanimous.

Earnings checkup: Through Thursday, January 30, 69% of companies in the S&P 500 that had released fourth-quarter results exceeded analysts’ earnings estimates—a beat rate that ranks slightly below the five-year average, according to FactSet. In aggregate, companies’ earnings were 4.1% above estimates—also below the five-year average.

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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.