Monthly Market Insights | February 2020

U.S. 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

Whatever you do in life, surround yourself with smart people who’ll argue with you. John Wooden, 10-time NCAA Champion while Head Coach of UCLA’s Men’s Basketball Team

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 Fears

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

U.S. Market Recap for January 2020
S&P 500 -0.16% Month ‌ -0.16% Year-to-Date	NASDAQ 1.99% Month ‌ 1.99% Year-to-Date	Russell 1000 0.07% Month ‌ 0.07% Year-to-Date	10-Year Treasury 1.52% Month ‌ 0% Year-to-Date
Yahoo Finance, January 31, 2020. 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. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

What Investors May Be Talking About in February

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

World Market Recap for January 2020
Emerging Markets	January	Year-to-Date
Hang Seng (China)	-6.67%	-6.67%
Kospi (Korea)	-3.58%	-3.58%
Nikkei (Japan)	-1.91%	-1.91%
Sensex (India)	-1.29%	-1.29%
Jakarta Composite (Indonesia)	-5.71%	-5.71%
Bovespa (Brazil)	-1.90	-1.90%
IPC All-Share (Mexico)	1.30%	1.30%
Merval (Argentina)	-3.76%	-3.76%
ASX 200 (Australia)	4.98%	4.98%
Europe
DAX (Germany)	-2.02%	-2.02%
CAC 40 (France)	-2.87%	-2.87%
Dow Jones Russia Index (Russia)	0.99%	0.99%
FTSE 100 (Great Britain)	-3.51%	-3.51%
Yahoo Finance, January 31, 2020. 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.

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

By the Numbers