The beginning of 2020 saw an economy poised to continue the steady pace of growth that it displayed throughout the previous year. Financial markets agreed and equity prices responded with strong early-month performance, willing to overlook the ugliness that has become the new norm in American government. Indeed, while the impeachment battle raged and, across the pond, Brexit steadily approached, it took a virus to rattle markets and cast a shadow on growth forecasts. Although the first case of coronavirus was detected on New Year’s Eve, the possibility of global economic impact didn’t start sinking in for a couple of weeks. By then, and since, new cases were being reported throughout the world and the potential severity of the outbreak, and its potential economic impact, was becoming concerning to market participants. The subsequent and somewhat aggressive sell off of equities and defensive move into Treasuries have really defined January markets. While the world sorts out this virus, and its impact, current economic reports for the U.S. remain solid. Fourth quarter GDP printed at 2.1%, slightly better than the 2.0% predicted by prognosticators. Employment numbers remain strong with unemployment rates at or near record lows across most major demographics and robust job creation. The ISM Manufacturing survey bounced back into expansionary territory, coming in at 50.9. Finally, despite the continued expansion and strength in the economy, inflation remained benign at 2.3%.
As if the script for the January stock market were written by Dickens, it was indeed the best and the worst of times. With most sectors participating, equity indices began the month by posting gains of around 3% for the Dow and S&P500, and nearly 5% for the tech heavy NASDAQ Composite. However, by the time the impact of the coronavirus story had taken its toll, most major indices were floundering in negative territory for the month. Leading the market for January was, not surprisingly,
the NASDAQ, which still managed to generate gains of slightly over 2%. Small company stocks, as best represented by the Russell 2000, struggled again in January while losing over 3% of value. Finally, international equities continued their trend of lagging U.S. markets.
Bonds were January’s harbor for those seeking shelter from the potential impact of the coronavirus with intermediate term U.S. Treasuries leading returns. Beginning with a 1.92% yield to maturity, the 10-year Treasury rallied strongly and finished the month at 1.51%, pushing prices higher. Meanwhile, the two-year Treasury declined in yield from 1.57% to 1.31% leading the yield curve flatter and appropriately signaling the market’s increased recessionary fears. While clearly aware of the potential economic impact of this health scare, but in the face of continued economic strength, the Fed stood pat on the Fed Funds rate. leaving the target at 1.50% to 1.75%. High yield debt, most closely linked with corporate economic sensitivity, lagged the market with a flat monthly return.
Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.