Market and Economic Commentary - Week Ending 02/21/2020

Market and Economic Commentary - Week Ending 02/21/2020

S&P Posts First Loss in Three Weeks

The S&P posted its first weekly loss in three weeks as investors fretted over the coronavirus’ impact on global growth. With the spread of the coronavirus appearing to have picked up pace outside of China, traders were forced to consider whether the impact of the virus will be worse than feared.

Returns in the Markets for the week ending 02/21/2020 were as follows:

US Major Market Indexes (The first number is each category in the 1-week performance. The second number is the year-to-date performance)

Dow Jones 30 Industrial Average (-1.38%. +1.59%). S&P 500 (-1.25%, +3.31%). NASDAQ Index (-1.59%, +6.73%). US Small-Cap Index (-0.54%, +0.60%). CBOE Volatility Index (VIX), or Fear Gage, (+24.85%, +23.95%).

US Sector ETFs

Communication Services (-1.44%, +4.64%). Consumer Discretionary (-1.06%, +3.89%). Consumer Staples (-0.22%, +2.65%). Energy (-0.81%, -9.83%). Financial (-1.28%, -0.03%). Health Care (-0.48%, +1.54%). Industrials (-1.24%, +2.60%). Materials (-0.28%, -1.76%). Real Estate (+0.12%, +8.43%). Technology (-2.47%, +8.48%). Utilities (-0.09%, +8.84%).

Global Market ETFs

ACWI all-country World index (-1.33%, +1.40%). ACWX all-country World index ex US (-1.49%, -1.91%). AAXJ all-country Asia ex Japan (-2.24%, -2.76%). EWJ Japan (-3.11%, -4.41%). EZU Eurozone (-1.03%, -0.98%). ILF Latin America 40 Index (-3.03%, -8.54%). EEM Emerging Markets (-2.06%, -3.52%).

Commodities ETFs

DBC Commodity Tracking Index (+0.89%, -7.34%). DBA Commodities Agriculture (+0.19%. -3.56%). USO United States Oil (+1.920%, -12.88%). DBB Base Metals (-0.71%, -5.96%). IAU Gold (+3.83% +8.34%). BDRY Dry Bulk Shipping (-2.33%, -41.68%).

Bond Market

In the bond market, the 10-year US Treasury interest rate went from 1.588 on February 14 to 1.473 on February 21, for a 7.24% decline on the week.

Currencies

In currencies, the US Dollar DXY Index went from 99.003 on February 14 to 99.188 on February 21.

Other Significant Events

US Stocks Tumble to Extend Losses

Wall Street closed deeply in the red on Friday, as fears of the coronavirus extending to other Asian countries besides China and dragging global growth weighed on sentiment. On the domestic front, PMI data revealed that US economic output contracted in January for the first time since October 2013, driven by a sharp decline in services. On the macro side, gold jumped nearly 2% to a 7-year high of $1,648, while the yield on the 30-year Treasury fell to an all-time low. Oil prices also fell in expectations of lower global demand. The Dow Jones lost 228 points or 0.8% to 28992. The S&P 500 tumbled 36 points or 1.1% to 3338. The Nasdaq plummeted 174 points or 1.8% to 9577.

European Stocks End Week Lower

Stock markets across Europe closed deeply in the red on Friday, tracking losses on Wall Street, as the coronavirus epidemic keeps growing and after flash PMIs out of the US surprised to the downside. The DAX 30 fell 85 points, or 0.6% to 13,579; the FTSE 100 retreated 33 points, or 0.4% to 7,403; the CAC 40 slid 33 points, or 0.5% to 6,030; the FTSE MIB declined 307 points, or 1.2% to 24,773; and the IIBEX 35 went down 45 points, or 0.5% to 9,886. For the week, all the indexes were lower, with the DAX 30 losing 1.2%, followed by the CAC 40 (-0.7%); the IBEX 35 (-0.6%); the FTSE MIB (-0.4%); and the FTSE 100 (-0.1%).

Brent Crude Falls 2%

Brent prices dropped nearly 2% to trade around $58 a barrel on Friday, on renewed worries about slowing oil demand due to a rise in the number of coronavirus cases outside China. Pressuring prices further were OPEC reluctance to intervene and balance the market by reducing output production.

US 30-Year Bond Yield Drops to All-Time Low

The yield on 30-year US government bonds fell to a record low of 1.892% on Friday, after flash PMI data showed the US manufacturing growth slowed to a 6-month low in February while the services sector slid into contraction for the first time in four years. US Treasury yields have been falling on growing concerns about global economic growth due to the coronavirus epidemic. At the same time, the 10-year Treasury note declined to 1.453%, the lowest since September 4th.

US Existing Home Sales Fall Less than Expected

Sales of previously owned houses in the US went down 1.3 percent from the previous month to a seasonally adjusted annual rate of 5.46 million units in January of 2020, above market expectations of 5.43 million. Sales of single family homes dropped 1.2 percent to 4.85 million in January and sales of condos declined 1.6 percent to 0.610 million. The median house price stood at $266,300 in January, below $274,500 in December which was the lowest since January 2016. There were 1.420 million houses available; at January's sales pace, it would take 3.1 months to clear the current inventory, up from 3 months in December.

US Output Contracts for 1st Time Since 2013

The IHS Markit US Composite PMI fell to 49.6 in February 2020 from 53.3 in the previous month, pointing to the first month of contraction in the private sector since October 2013, a preliminary estimate showed. Services activity dropped for the first time in four years, while manufacturing growth slowed to a six-month low. Overall new orders decreased for the first time since the series began in 2009 and employment growth slowed to a four-month low. Still, business confidence strengthened to an eight-month high, but remained historically subdued as firms highlighted ongoing global uncertainty and the outbreak of coronavirus.

US Service Sector Activity Falls for 1st Time in 4 Years

The IHS Markit US Services PMI dropped to 49.4 in February 2020 from 53.4 in the previous month and well below market expectations of 53, a preliminary estimate showed. The latest reading signaled the first decline in business activity since February 2016 as new business declined the most since the series began in October 2009. new export orders also dropped amid the concerns about the impact of the coronavirus outbreak. The level of outstanding business fell and the pace of job creation softened. On the price front, input cost inflation eased to five-month low, while output charges rose only fractionally. On a more positive note, business confidence reached the strongest since last June.

US Factory Activity Growth Lowest in 6 Months: Markit

The IHS Markit US Manufacturing PMI fell to 50.8 in February of 2020 from 51.5 in January, below market expectations of 51.5, preliminary estimates showed. The reading pointed to the slowest expansion in factory activity since August as output growth was the softest since last July, with firms stating that weak demand conditions and delays in deliveries following the outbreak of the coronavirus in China had dented production. Meanwhile, inflationary pressures remained historically subdued midway through the first quarter amid a slower rise in cost burdens. Firms only raised their charges fractionally as they sought to remain competitive and boost sales. On the other hand, output expectations were the highest in 10 months although firms suggested uncertainty surrounding the impact of coronavirus had weighed on optimism and could further impact production.

Gold Hits 7-Year High Gold prices surged to a seven-year peak on Friday and were set to post their best week in over six months amid persistent fears about the global economic impact of the Covid-19 outbreak. Further spread of the epidemic outside China, with South Korea reporting 52 new cases and Japan recording the second fatality raised more concerns about the global impact of the disease. Gold prices rose nearly 1.5% to $1,643 an ounce around midday NY time.

Week Ahead

The US is releasing the second estimate of Q4 GDP growth in the coming week, alongside durable goods orders, personal income and outlays, and PCE price index. Elsewhere, all eyes turn to China's NBS PMI survey, the country's first major data release since the coronavirus outbreak, and to the NPC Standing Committee Meeting on Monday. Other important numbers include UK consumer morale, Eurozone business confidence, Germany unemployment and inflation, Japan industrial production and retail sales, and India Q4 GDP growth.

Thank you and please stay tuned for more upcoming reports.

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Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor” newsletter should not be considered as investment advice or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, StockCharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OCED, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not an RIA. The data is shown for informational purposes and should not be considered investment advice or an offer to buy or sell securities.