Investment Update January 29, 2020: “In the News” - Coronavirus and Economic Data
- Stocks have enjoyed a fairly uninterrupted rise since the 4th quarter of last year, so a pullback is to be expected.
- The Coronavirus originating in China may be a catalyst for selling.
- While serious, it is still early in this outbreak to determine its economic effect. Headlines of pandemics accompanied SARS, Ebola, Swine Flu, Avian Flu and many other health emergencies, although all were generally contained to the area.
- The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting Tuesday morning. The FOMC has been clear that the Federal Funds overnight rate will remain steady in the near future.
- With regard to impeachment, the markets may have already factored in the available public information. As the Senate trial enters an important phase, new developments may obviously impact the markets in either direction.
- With little exception, economic data remains strong and at the end of the day the markets will be driven by economic strength or weakness.
- Apple is a bellwether for the market and reported earnings for the 4th quarter of 2019 on Tuesday and exceeded Wall Street expectations. Apple is heavily dependent upon China for manufacturing and supply chain so disruptions due to the Coronavirus should be closely monitored.
The Dow Jones Industrial Average is currently at 28,780. As mentioned in many other market comments, a normal market, rising or declining, can be described as “two steps forward and one step back”. While economic data remains strong, a pullback is not unexpected. A retreat of 3% to the 27,850 area would be reasonable and if negative headlines increase momentum, the next level would be a retreat of 6 to 7% or the 26,900 level. That would be roughly 900 and 1800 points respectively. Remember, as the markets continue to rise, the “point” swings of the Dow can appear exaggerated in relation to percentages. A well-rounded asset allocation in our portfolios is prescribed and we are holding to that.
According to the World Health Organization, there are 4593 confirmed cases of Coronavirus globally.
In China, 4537 confirmed cases and 6973 cases are suspected with 106 deaths. Outside of China, there are 56 confirmed cases in 14 countries.
WHO’s standard recommendations for the general public to reduce exposure to and transmission of a range of illnesses including the common cold include hand and respiratory hygiene, and safe food practices. While the Centers for Disease Control or CDC considers this is a very serious public health threat, based on current information, the immediate health risk to the general American public is considered low at this time.
While serious, it is still too early to determine its economic effect. Headlines of pandemics accompanied SARS, Ebola, Swine Flu, Avian Flu and many other health emergencies.
As mentioned above, overall economic data is as strong as anything we could ask for. Of course, we continue to monitor the more technical economic aspects that may affect your portfolios such as treasury bond yields and overnight credit markets.
As for now, please feel free to reach out to us with any questions or to schedule a visit.