Weekly Market Digest: Enthusiasm for Stocks Overcomes Coronavirus Fears

Enthusiasm for stocks, especially large growth stocks, once again overcame fears of the widening coronavirus crisis. Last Friday’s solid jobs report provided support and earnings continue to generally exceed expectations. Analysts are expecting modest earnings growth overall from a year ago. Fed Chair Powell said the virus is a risk, but that existing policy remains appropriate and suggested the central bank would again utilize quantitative easing in the next slowdown.

Weekly Returns:

S&P 500: 3,380 (+1.6%)
FTSE All-World ex-US (VEU): (+0.8%)
US 10 Year Treasury Yield: 1.59% (-0.00)
Gold: $1,585 (+1.0%)
EUR/USD: $1.083(-1.1%)

Major Events

• Monday – Microsoft gained 2.6%, passing $1.4 trillion in market cap and again becoming the most valuable US company.
• Tuesday – US credit card balances rose to $930 billion according to data from the Federal Reserve, a new high.
• Tuesday – Fed Chair Powell suggested existing rates were appropriate but indicated the bank would use QE in the next downturn. President Trump again commented unfavorably about the Fed’s policies.
• Wednesday – The Consumer Price Index rose just 0.1% in January, restrained by falling energy prices.
• Friday – China tightened quarantine procedures as total cases rose above 63,000.

Our Take

For some time now, investors have been treating every dip as a buying opportunity. The minor pullback spurred by the coronavirus a few weeks ago has been no exception so far. The reality is that it’s too soon to know how big the economic impact from the virus will be. China changing its accounting for new cases has only added to the confusion.

It is true that the global economy is massive, and it takes a lot for it to change course. Meanwhile, this bull market is largely fueled by accommodative central bank policies and low interest rates. Fed Chair Powell supported this thesis this week. The ten-year Treasury is back below 1.6% and low rates are helping support the housing markets and fueling refinance opportunities that are giving consumers more available cash. Also helping this week, Beijing has employed significant stimulus measures to counter the impact of the virus.

Most investors appear most focused on fear of missing out. Hopefully that remains the case over the next few weeks as we learn more about how the virus spreads and how China’s and the global economy are impacted.