Investment Commentary –January 28, 2020

Year to Date Market Indices as of Market Close January 28, 2020
• Dow 28,722 (0.71%)
• S&P 3,280 (1.41%)
• NASDAQ 9,370 (3.31%)
• Gold $1,568(3.17%)
• Oil $53.57 (-12.45%)
• Barclay Bond Aggregate (1.47%)
• All World Index (-0.21%)
• Fed Funds Rate 1.75 (Three -0.25 rate cuts in 2019)
• US Real GDP Growth 2.1 Q3/2019 (Up from 2.0 in Q2)

Dow rebounds after biggest one-day loss since October

Chinese virus fears abate somewhat as focus returns to earnings reporting season

U.S stocks recovered some ground Tuesday, a day after worries about the impact of China’s coronavirus outbreak on global economic growth sparked the biggest one-day selloff since early October.

Investors were also wading through a tide of quarterly results from a number of high-profile companies as earnings reporting season picks up steam.

What are major indexes doing?

The Dow Jones Industrial Average DJIA, +0.66% gained 274 points, or 1%, to 28,812 while the S&P 500 index SPX, +1.01% was up 41 points, or 1.3%, to 3,286. The Nasdaq Composite COMP, +1.43% rose 146 points or 1.6%, to 9,285.

The Dow dropped 453.93 points Tuesday, a decline of 1.6%, to end at 28,535.80, while the S&P 500 shed 51.84 points, or 1.6%, to end at 3,243.63. It was the biggest decline for both indexes since Oct. 2. The Nasdaq Composite ended at 9,139.31, down 175.60 points or 1.9% — its biggest-one day fall since Aug. 23.

What’s driving the market?

Chinese authorities on Tuesday said deaths from the coronavirus epidemic rose to at least 106, while the number of confirmed cases in China rose to more than 4,500.

China’s already weakening economy is set to take another hit — with businesses across the country remaining shut for an extended public holiday and tourism grinding to a halt — as authorities struggle to contain the pneumonia-like coronavirus that has spread across the nation, the South China Morning Post reported.

“While the coronavirus outbreak is an unexpected risk factor that could move the markets if the situation deteriorates, and comparisons to the 2003 outbreak of severe acute respiratory syndrome (SARS) have been widespread, there are important differences,” J.P. Morgan, chief of global research, Joyce Chang wrote in a note.

“First, the Chinese government has taken serious actions much faster this time. Second, the mortality rate of the current coronavirus outbreak is 2-3% compared to +10% for SARS, and the vast majority of current casualties have been concentrated in elderly people with pre-existing conditions,” Chang said.

Investors are also digesting U.S. corporate earnings reports Tuesday. Apple is among the S&P 500 index components set to report after Tuesday’s close. Apple suppliers cautioned coronavirus could impact the phone maker’s planned production hike.

Earnings scorecard: It’s the peak of earnings season, with nearly 150 companies in the S&P 500 Index and 14 of the Dow’s 30 components scheduled to report quarterly results in the week that starts January 27. Through January 23, 73% of companies reported earnings that exceeded analysts’ estimates—a beat rate that ranks above the five-year average, according to FactSet.

Fed ahead: The U.S. Federal Reserve is widely expected to keep interest rates unchanged when it concludes a two-day meeting on Wednesday. Fed statements will be closely watched for any indications as to whether the central bank will bolster market expectations that it could maintain its current neutral stance on rates throughout 2020, absent any big surprises in the economic outlook.

Oil slide: U.S. crude oil prices tumbled 7.5% to around $54 per barrel, the lowest level in three months. Among the factors that depressed prices were travel restrictions resulting from the emergence of the coronavirus—a health threat that appears to have originated in China.

Brexit’s arrival: The leaders of the European Union and the United Kingdom signed an agreement to move ahead with the long-delayed Brexit. The nation’s formal separation from the EU is scheduled for January 31, although Britain has agreed to abide by EU rules during a transition period until the end of this year.

Upcoming Reports

Tuesday: U.S. Federal Reserve Board opens two-day policy meeting

Thursday: Fourth-quarter GDP, advance estimate, U.S. Bureau of Economic Analysis

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.