Stocks ended a volatile week mostly lower, with the Nasdaq index notching a modest gain. Strong earnings were offset by increased fears over the coronavirus.
While Monday started off with a significant decline due to concerns about the coronavirus, markets shrugged off these concerns and rebounded on Tuesday after strong earnings releases. The Federal Reserve Board met and voted unanimously to leave interest rates unchanged. However, the FED’s statements deflated the market rally on Wednesday. The FED’s statement downgraded household spending to “moderate” from “strong.” and said the FED is “very carefully monitoring” the impact from the coronavirus.
The UK finally has reached BREXIT as the EU ratified the deal previously approved by the U.K. Parliament. The U.K. officially left on January 31st. However, all existing trade agreements run through year end to allow the U.K. time to negotiate new agreements. President Trump has said trade negotiations with the U.K. will be top priority. The UK central bank has left interest rates unchanged at their meeting this week and are projecting 0.2% per quarter growth for 2020.
On Thursday the world health organization declared the coronavirus a global public-health emergency. While the current coronavirus has about a 2% death rate, lower than the SARS and MERS viruses in the early 2000s, it does appear to be more contagious and it may take a year to develop a vaccine. Also, there is about a two week incubation period before people develop symptoms during which may transmit the virus. So far, in the U.S. there is only one confirmed person-to-person transmission and this is between spouses from a woman who had returned to Chicago from Wuhan.
Stocks sold off on Friday over global growth concerns over the coronavirus. While the impact on the United States economy is expected to be minimal, forecasts anticipate China, the worlds second largest economy, taking a hit of 1.5% to 2.0% off of the Q1 growth rate.
The 10-year Treasury yield fell to 1.509%. Crude oil fell to $51.63 a barrel and natural gas fell to $1.846MMBTUs. The U.S. dollar fell against a basket of currencies and gold prices rose to $1593.40 an ounce.
In economic numbers this week:
- The Commerce Department reported:
- Durable Goods Orders rose 2.4% in December. The increase was mainly due to defense spending as non-defense capital goods excluding aircraft actually fell 0.9%. The increase in defense spending was largely due to congressional approval of an increase in military spending. Non-defense aircraft orders fell sharply, as Boeings grounding of 737 MAX aircraft weighed on the sector.
- 4th quarter gross domestic product rose at a 2.1% annual rate. For the entire year, GDP rose 2.3%, which is inline with the average rate of growth since the economic recovery started in 2009. The increase was mainly due to an increase in exports and a sharp decrease in imports. Business spending fell as did consumer spending except for housing which rose.
- Personal-consumption expenditures rose 0.3% in in December from November.
- Personal-income rose 0.2% in December from November.
- The price index for personal consumption expenditures rose 1.6% in December from a year earlier. Excluding volatile food and energy, prices also rose 1.6% year over year.
- S&P CoreLogic Case-Shiller National Home Price Index rose 3.5% year over year in November, up from 3.2% at the end of October.
- The EIA weekly oil report is here wpsrsummary. Also, the EIA reported in the past week:
- Field production of crude oil was unchanged at 13.0MM per day.
- Natural gas storage fell by 201BN cubic feet and is above the five year average at this time of year.
- Baker Hughes reported the number of active oil rigs fell 1 to 675 and the number of active gas rigs fell 3 to 112.
- Factset reported that with 45% of S&P 500 companies reporting, the blended earnings decrease was -0.3% from Q4 2018. Last week with 9% of the companies reporting the blended decline was -1.9%.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith AIF®
President Managing Partner
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Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.