It was a short week for trading that ended with a risk-off tone. Defensive sectors like consumer staples and utilities held in relatively well, while more cyclical sectors like technology and consumer discretionary took a beating on Friday. Global financial markets digested new information regarding the increase in Coronavirus cases surfacing outside of China. The virus is seen to be at a pivotal point for containment that could go either way.

Weekly Returns

S&P 500: 3337.75 (-1.25%)
FTSE All-World ex-US (VEU): (-1.49%)
US 10 Year Treasury Yield: 1.46 (-0.13)
Gold: $1,642.6 (3.77%)
EUR/USD: 1.0848 (0.14%)

Major Events

• Monday – Jeff Bezos, CEO of Amazon, announced he is launching a new fund called the Bezos Earth Fund, a $10 billion initiative to fund efforts toward climate change.
• Tuesday – Shares of Apple stock took a hit Tuesday after warning disruptions in iPhone manufacturing, due to the Coronavirus, would cause it to miss its revenue guidance for the quarter.
• Wednesday – Fed minutes showed officials were content with no change to current monetary policy.
• Wednesday – The IMF reiterated their view of stabilizing global growth but cited the coronavirus as one of the main concerns that could alter the outlook.
• Thursday – Morgan Stanley announced its plan to buy discount broker E*Trade.
• Friday – The 30-year U.S. Treasury yield dropped near all-time lows Friday as fear of broader contagion outside of China dominated headlines.

Our Take

If the sudden rise of cases of coronavirus outside of China continues to escalate, it would jeopardize what appears to be a recent bottoming in global growth which is already on rocky ground. So far it has been a solid corporate earnings season, but the virus has already created supply chain disruptions causing concern on what the actual fallout will be. Most agree the risk of the virus on the global economy is real and developments are being followed closely.

What has been interesting is that equity market reactions have been relatively muted. Financial Media is compelled to put a narrative to every intraday market move, so it is hard to say for sure. Perhaps the market was also just taking a breather after recently surging to all-time highs? There does appear to be somewhat of a disconnect from fundamentals especially in certain areas of the market like technology and mega-cap growth stocks. But we know better to try to time or forecast the reversal! All we know is these trends eventually come to an end, we just don’t know when.

Big News on Wall Street this Week

On a lighter note, remember the cute little E*Trade baby trading in front of a webcam that ultimately turned E*Trade into a household name? If you want to feel old, that was 2007, meaning that little baby is about 13 years old now. Just this week, it was announced E*Trade will be purchased by Morgan Stanley in a $13 billion all-stock deal. The deal marks the largest acquisition by a Wall Street bank since the 2008 financial crisis.

There are many opinions on what this means and whether it is a good move. The recent Schwab and TD Ameritrade deal played a role as competition in the discount broker space has been heating up for years now over the race to zero commission fees. On the other side of the equation we have seen big banks like Goldman Sachs and JP Morgan make moves to diversify their revenue sources away from traditional net interest margins in such a low interest rate environment. Add in a relaxed regulatory environment and you get prime conditions for a big merger. We expect this trend to continue and more shake-ups to follow. As far as whether it is a good decision?… Only time will tell.