EC Weighing The Week Ahead: Coronavirus – Cause For Analysis Or Paralysis?

The economic calendar is a big one, including the employment report and the ISM data. We’ll have plenty of political news and corporate earnings. Despite these candidates for attention, I expect investors to join others in a close watch of coronavirus developments. As usual, there are many newly minted experts ready to describe the investment implications. It is not an easy task, as we shall see in today’s post. Expect the punditry to be asking:
 

Should investors bail out, sit tight, or wait for more information?


Last Week Recap

In my last regular installment of WTWA, (two weeks ago) I highlighted the importance of watching corporate earnings reports. That has indeed been a regular topic, despite competition from other breaking news.

I hope readers also checked out my 2020 preview article, where I always enjoy the opportunity to write about a different time frame.


Personal Note

Mrs. OldProf likes KC because of their unstoppable offense. (Actually, I think she has a crush on their Quarterback). I like the parlay of Niners and under, since I think a victory for them will only come if their defense prevails.


The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com’s version. If you go to the interactive chart online, you can see the news behind each of the “N” callouts.

The market lost 2.1% for the week. The trading range was 2.4%, although it felt larger to most observers. Monday trading was weak. The mid-week rebound was erased –and more – on Friday. In general, each decline was attributed to the coronavirus story and the rebounds to “the market shrugging it off.” You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.


Noteworthy

Take a look at the Visual Capitalist's Tesla Now Worth More Than Ford and GM Combined

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

New Deal Democrat’s high frequency indicators are an important part of our regular research. This report is fact-based. NDD is consistent with the package of indicators. Each has a source and often an accompanying chart. This week shows that indicators in all time frames remain positive, although the short-term and most volatile group is only a weak positive. Read the entire post for NDD’s commentary on the specifics.

The Good

  • Mortgage applications were very strong, rising 7.2% versus last week’s decline of 1.2%. The start is even better than last year’s excellent performance.

  • Durable goods orders for December increased 2.4% versus expectations of 0.5% and November’s downwardly revised loss of 3.1%.
  • Consumer confidence in January was strong and improving. This week I show results from three different survey methods.

    • The Conference Board indicator was 131.6 beating expectations of 128 and the upwardly revised December reading of 128.2
    • Michigan sentiment registered 99.8, beating expectations and December’s reading – both 99.1
    • Gallup’s polling also shows economic confidence at the highest level since 2000.

  • PCE prices were roughly in line with expectations, with the closely watched core rate up 0.2%.
  • GDP increased 2.1% according to the first estimate for Q4 2019. This beat estimates of 1.8% and equaled Q3. A closer look at the data is less encouraging. Dr. Robert Dieli shows the contribution of components, broken down into “core” and “noncore” categories. His full report explains why the export contribution is unusual and misleading. Consumers are doing the “heavy lifting.”

He also describes the results in terms of cyclical and non-cyclical economic activity. The dramatic changes over the course of the year become obvious.

Jill Mislinski provides another useful perspective on the rate of economic growth – considering GDP per capita.

She points to the dramatic change in trend at the time of the Great Recession.

The Bad

  • New home sales for December were 694K (SAAR) missing expectations of 725K. November was revised lower, from 719K to 697K. Calculated Risk points to the year-over-year results – up 23% over December 2018 and the 2019 total up 10.3% from 2018. He notes that comparisons will be “fairly easy” in the first five months of 2020, but more difficult later.

  • Pending home sales for December declined 4.9%, versus expectations of a gain of 1.0% and November’s 1.2%. Calculated Risk also comments on the relationship between new and existing home sales. For many years there was a tight relationship. Following the housing bubble there were many distressed sales. Bill has consistently followed this “distressing gap” which persisted as builders focused on more expensive homes. That is changing.

  • Personal income for December increased only 0.2% missing expectations of 0.3% and worse than November’s downwardly revised 0.4%. Once again, the year-over-year viewpoint looks quite different. (First Trust).

    Personal income and spending continued to rise in December, closing out 2019 on a high note. For the year, personal income rose a healthy 3.9%, while spending increased 5.0%, tied for the largest annual increase going back to 2006. Within income, gains for both December and full-year 2019 were led by private-sector wages and salaries, which rose 0.3% in December and are up 5.5% over the past twelve months.Incomes were further supplemented in December by a rise in interest income which helped offset a decline in farm proprietors’ income (due to lower subsidy payments from the Department of Agriculture to farmers impacted by the trade skirmish). Higher incomes, in turn, continue to drive spending, which rose 0.3% in December. Purchases picked up for both goods and services, as a drop in spending on autos and energy products (both gasoline and home utilities fell in December) was more than made up for by increased spending on medical care, food, and recreation. 

  • The Chicago PMI for January registered only 42.9, far below the expected 48.7 and December’s downwardly revised 48.2. [Jeff – I have often noted that this report has more importance when it comes on a Friday. It is seen by many has a clue about the ISM manufacturing survey. This week’s big miss came in the context of the coronavirus stories, amplifying the impact.]
  • The earnings “beat rate” (69%) and amount above estimates (4.1%) are both somewhat below the average for the last five years. (FactSet). Here is the summary by sector.
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Beating Buffett 7 months ago Member's comment

With so much uncertainty surrounding the coronavirus, investors should sit tight. I believe the numbers are being drastically under reported in China (at least if you believe the Chinese doctors on social media). I think things are going to get far worse, but how bad, we have no idea.

David M. Goldstein 7 months ago Member's comment

Agreed. it's time to invest in a safe haven like #gold!

Mary Holan 7 months ago Member's comment

Great read. Very thorough.

Jeff Miller 7 months ago Author's comment

Thanks. It is a labor of love. This week was a special challenge.

Jeff

Gary Anderson 7 months ago Contributor's comment

Go Niners! Article is packed with information.

Jeff Miller 7 months ago Author's comment

Thanks, Gary.