U.S. stocks were dragged lower by renewed fears of the global economic impact caused by the coronavirus outbreak. Apple lowered its revenue guidance on lower demand for its products in China amid temporary retail store closures, which added to worries about the fallout from a slowdown in China's economic growth. Positively, China cut its benchmark lending rates last week, lowering financing costs for businesses in an effort to support the economy. Preliminary economic data from IHS Markit showed that the U.S. services sectors contracted unexpectedly in February. Activity in the manufacturing sectors also weakened. We expect to see increased short-term volatility in response to potentially underwhelming economic data and more profit warnings from companies in the first quarter. However, we don't think this will knock the economy off its expansionary path, as activity is likely to rebound as the year progresses.
It's said that you shouldn't look a gift horse in the mouth, but we'd argue that it doesn't hurt to check it for cavities occasionally. The stock market has certainly played the role of gift horse lately, returning over 4% so far this year and an average of 14% since early October, including reaching new all-time high last Wednesday1. We have no objections to this latest rally. The economic backdrop, monetary policy settings, and financial conditions are all supportive of further longevity for this bull market.
At present, we see no structural imbalances, bubbles or excesses (often hallmarks of a market top) that pose a systemic or imminent threat. But we are mindful that a root canal is what results when a small cavity goes untreated. To that end, we note below a few recent signs that have caught our eye. The upshot is that none of these are sufficiently structural that they are flashing red for the broader market outlook. However, they do reflect current sentiment that we'd characterize as an air of complacency. We think investors can maintain a positive outlook in 2020, but they should anticipate a bumpier path ahead.
Craig Fehr, CFA
Sources: 1. Bloomberg 2. FactSet
|Dow Jones Industrial Average||28,992||-1.4%||1.6%|
|S&P 500 Index||3,338||-1.3%||3.3%|
|10-yr Treasury Yield||1.46%||-0.1%||-0.5%|
The Week Ahead
Important economic data being released include consumer confidence on Tuesday, new home sales on Wednesday, and personal income and spending on Friday.
The Weekly Market Update is published every Friday, after market close.
Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.
Past performance does not guarantee future results.
Diversification does not guarantee a profit or protect against loss.
Dividends may be increased, decreased or eliminated at any time without notice.
Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.
Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
The content of this report is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.
The Dow Jones Indexes are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use.
All content of the Dow Jones Indexes © 2017 is proprietary to Dow Jones & Company, Inc.
Get instant quotes for your favorite companies and mutual funds.