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MONTHLY MARKET INSIGHTS | February 2020

MONTHLY MARKET INSIGHTS | February 2020

February 11, 2020
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US Markets

Stock prices were mixed in January as prices surged, thanks to strong economic news, only to retreat sharply in the second half due to concerns of the potential economic impact of the coronavirus.

The Dow Jones Industrial Average dropped one percent, while the Standard & Poor’s 500 Index lost nearly 0.2 percent. The NASDAQ Composite, however, managed to post a gain of 1.99 percent.1

On the first day of trading in the new year, the major indices posted record highs. Those gains were erased on fears of a potential military conflict following an American drone strike that killed Iran’s top general.

The “Phase One” Phenomenon

The January 15 signing of the “Phase One” trade agreement between the U.S. and China removed some uncertainty from the market, lifting investors’ hopes that global economic growth would accelerate. This, coupled with strong economic data, especially a surge in home building, helped send stocks to record highs.

Coronavirus Fear

But news of the spreading coronavirus stoked global economic fears and affected stocks in a broad cross-section of industries, including energy, travel, airlines, and gaming.

With more cases reported in the U.S. – and China’s struggles to contain the outbreak – stocks trended lower at the end of the month. The selling accelerated on the final day of trading, pushing the Dow Industrials and S&P 500 into the red for January.

Sector Scorecard

Industry sector performance was mixed, with gains in Communication Services (+2.37 percent), Consumer Staples (+1.56 percent), Industrials (+1.85 percent), Real Estate (+3.65 percent), Technology (+7.27 percent), and Utilities (+7.64 percent), while losses were posted in Consumer Discretionary (-0.19 percent), Energy (-7.60 percent), Financials (-0.26 percent), Health Care (-0.49 percent), and Materials (-3.35 percent).2

What Investors May Be Talking About in March

In the month ahead, investors are expected to monitor the start of the Democratic primary season. With the Democratic National Convention planned for July 13th, all eyes remain fixed on March 3rd, often called Super Tuesday, when 14 states will hold their primaries.3

Early wins in Iowa and New Hampshire can be important, but don’t necessarily translate into a presidential nomination.

Regardless, the results of these early primaries may provide insight into voter behavior, which may help reduce investor uncertainty.

World Markets

Concerns over the coronavirus outbreak dragged international markets lower, resulting in a loss of 1.86 percent in the MSCI-EAFE Index.4

Major markets in Europe were broadly lower, with France declining 2.87 percent; Germany, 2.02 percent; the United Kingdom, 3.51 percent. Pacific Rim stocks also sank, as Hong Kong slumped 6.67 percent and Japan retreated 1.91 percent.5

Indicators

Gross Domestic Product

Even though the initial estimate of fourth-quarter GDP growth posted an annualized increase of 2.1 percent,6 the U.S. economy expanded at its slowest annual rate since 2016.

Employment

Employers added 145,000 new jobs in December, which fell short of market expectations. The unemployment rate stayed steady at 3.5 percent, but wage gains cooled, rising 2.9 percent from a year earlier, their slowest pace since July 2018.7

Retail Sales

Retail sales rose 0.3 percent during the final month of the year.8 The National Retail Federation, a retail industry trade group, reported a 4.1-percent jump in holiday sales versus December 2018.9

Industrial Production

Output at the nation’s factories, mines, and utilities faced a 0.3-percent decline, despite an uptick of 0.2 percent in manufacturing.10

Housing

Housing starts surged 16.9 percent, touching levels not seen since December 2006. Housing starts were also 40.8 percent higher versus December 2018.11

Sales of existing homes rose 3.6 percent month-over-month and were higher by 10.8 percent versus December 2018.12

However, new home sales declined for the third straight month in December, falling 0.4 percent.13

Consumer Price Index

Prices of consumer goods rose 0.2 percent in December. Inflation ticked up by 0.1 percent, excluding the more volatile food and energy components.14

Durable Goods Orders

Orders for durable goods rose 2.4 percent, powered by a surge in defense-related orders. Orders for nondefense capital goods, excluding aircraft – a measure of business investment – was weak, decreasing 0.9 percent.15

The Fed

In January, the Federal Open Market Committee (FOMC) members voted unanimously to keep short-term interest rates unchanged. The Fed indicated that it remains comfortable with maintaining rates at their current levels until further data is available to illustrate how the economy is responding to the three rate cuts in 2019.

In a post-meeting press conference, Fed Chairman Jerome Powell weighed in on the recent outbreak of the coronavirus, suggesting it was too soon to assess the economic impact. He added that the Fed would respond to changing conditions should they have a material effect on the committee’s current economic assessment.16

 

  1. The Wall Street Journal, January 31, 2020
  2. Factset Research, January 31, 2020
  3. Ballotpedia.com, January 2020
  4. MSCI.com, January 31, 2020
  5. MSCI.com, January 31, 2020
  6. The Wall Street Journal, January 30, 2020
  7. The Wall Street Journal, January 10, 2020
  8. The Wall Street Journal, January 16, 2020
  9. CNBC.com, January 16, 2020
  10. The Wall Street Journal, January 10, 2020
  11. Reuters.com, January 17, 2020
  12. The Wall Street Journal, January 22, 2020
  13. CNBC.com, January 27, 2020
  14. The Wall Street Journal, January 14, 2020
  15. The Wall Street Journal, January 28, 2020
  16. The Wall Street Journal, January 29, 2020

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.

The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

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