Strong Economic Data Overcame Coronavirus Fears for Investors Last Week
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 2/07/2020. Rates and Economic Calendar Data from Bloomberg as of 2/07/2020. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets came storming back during the first week of February. In the U.S., the S&P 500 Index rose to a level of 3,328, representing a gain of 3.21%. The index reached record highs midweek and now sits in positive territory for the year. Unable to keep pace with their large-cap counterpart, though still posting impressive results, the Russell Midcap and the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 2.24% and 2.67% respectively. On the international equities front, developed markets gained 1.86%, while emerging markets increased 2.75% for the week. Finally, the 10-year U.S. Treasury yield closed at 1.59%, up 8 basis points from the prior week.
Positive economic news and corporate earnings reports supported the rally. In the U.S., payroll numbers significantly surpassed expectations and activity increased in the service sector. In Asia, China signaled continued willingness to support growth in the form of additional monetary stimulus. This news helped fuel the global rally. These updates came in amid the increasing impact of the Coronavirus, which continues to dominate headlines. To put the virus’ economic impact into perspective, Goldman Sachs Asset Management estimates a 0.1-0.2 percentage point drag on 2020 global growth and expects new infections to peak in Q1. They also expect the Q1 economic growth impact to be “mostly offset by a subsequent pick-up later in the year.” While we hope the virus is contained as soon as possible, it’s potential impact doesn’t materially change our economic views for 2020 at this point in time.
As it relates to corporate earnings, recent reports helped to validate the rally and provided some rationale for optimism to persist in 2020. According to FactSet, with 64% of the companies in the S&P 500 reporting results for Q4 2019, 71% of companies reported earnings-per-share (EPS) above estimates and 67% of companies beat revenue estimates. Combining actual results with remaining expectations, the revised earnings growth rate is roughly +0.7%. At the onset of earnings season, the anticipation was for a year-over-year decline in earnings growth, as was the case just last week. An increase would mark a change from the negative bias of recent quarters and sets-up for what we expect to be consecutive quarters of positive earnings growth over the 1st half of 2020.
Earnings continue to roll in this week along with a slew of economic data releases. Updates on inflation, small business optimism, retail sales, and consumer sentiment will undoubtedly garner attention as will continued updates on the Coronavirus. As always, we continue to encourage investors to stay disciplined and work with experienced financial professionals to help manage their portfolios through various market cycles within an appropriately diversified framework that is consistent with their objectives, time-frame, and tolerance for risk.
Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.
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MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
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LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
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DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.