Weekly Market Digest: Fears Ease that Coronavirus will Sap Global Economy

Global equities rallied with U.S. stocks once again touching record highs. This was a sharp reversal from the previous two weeks when fears of the coronavirus and its impact on global growth weighed on markets. Investors shed safe haven assets such as bonds and gold, with the 10 year treasury yield moving higher after flirting with 6 month lows a week earlier. The dollar continued to strengthen against the euro.

Weekly Returns

S&P 500: 3,328 (+3.2%)
FTSE All-World ex-US (VEU): (+2.3%)
US 10 Year Treasury Yield: 1.59% (+0.08%)
Gold: $1,570 (-1.2%)
EUR/USD: $1.095 (-1.0%)

Major Events

• Monday – The Institute for Supply Management’s purchasing managers’ index posted its first expansion in six months.
• Monday – Caucuses got underway in Iowa to vote for the next Democratic nominee.
• Tuesday – Results of the Iowa caucuses were delayed in an operational mishap, but preliminary figures showed Pete Buttigieg and Bernie Sanders in the lead.
• Wednesday – The U.S. Trade deficit declined for the first time since 2013.
• Wednesday – President Trump was acquitted of all impeachment charges by the U.S. Senate, with Mitt Romney as the only Republican voting to convict.
• Thursday – China announced it will cut tariffs on U.S. imports in half on February 14th, as part of the phase-one deal.
• Friday – U.S. hiring increased more than expected in January, with employers adding 225,000 jobs.

Our Take

Despite all the turmoil, stocks marched even higher. Much of this was a relief rally as fears began to fade that the coronavirus would sap global economic growth. This was driven by a few different factors. The first was the virus outbreak itself, where daily growth in new cases appeared to be decelerating. Corporate earnings have also been relatively healthy, and there were signs of progress in the trade war after China announced it will mirror the U.S. by cutting tariffs later this month. All of this helped alleviate fears of massive economic fallout.

This is not to say the coronavirus outbreak isn’t important, or that it isn’t still a risk. Recent reports claim the virus has now infected more than 30,000 and killed over 600. It has caused significant human tragedy, and it is still too soon to know how the outbreak will spread or project the economic impact. The coming weeks will be important and could once again result in downside volatility if conditions worsen. But as an investor it is important to remember there have been similar scares in the past, and the worst case is usually avoided. The global economy is massive and very difficult to derail.