Coronavirus Impact On Markets Continues

Dear Valued Investor:

“The stock market takes an escalator up, and an elevator down.” Classic Wall Street saying.

The last week has sure felt like taking an express elevator down, as the end of February brought a historic stock market sell-off, with the S&P 500 Index moving from an all-time high to a 10% correction in only six days—the quickest such move ever. Along the way, the Dow Jones Industrial Average (Dow) experienced multiple 1,000-point drops, including Thursday’s biggest one-day point drop ever, adding to fears. As the coronavirus spreads around the globe, what was once a promising start to 2020 now has the S&P 500, Dow, and Nasdaq Composite all negative year to date.

To put the recent market weakness in perspective, in an average year the S&P 500 may pull back from its highest point to its lowest point 14% on average. Even in years in which the S&P 500 finished higher, it had a pullback of 11% on average. In 2019, when stocks gained more than 30%, we saw two pullbacks of more than 5% during the year. After a historically calm stretch to end last year and start this year, larger than normal volatility shouldn’t come as a surprise. We didn’t expect stocks to pull back this quickly, but we’re still within the normal range of market volatility.

Download Full Letter

Stock Markets Enter Correction Territory

Amid increasing concerns about the spread of the coronavirus (COVID-19) and its potential impacts on global economic growth, many major global stock markets entered correction territory on Thursday; a correction is generally defined as a 10% or more peak-to-trough decline based on closing prices.

Around the world numerous large cap equity indexes, including the NASDAQ Composite, Dow Jones Industrial Average (Dow), Stoxx Europe 600, and FTSE 100, closed with corrections from recent highs. The Dow’s largest ever daily point drop made headlines, but in percentage terms, the decline actually ranked only 125th of all time. The S&P 500 Index closed down more than 4% on the day, the latest of six consecutive down days, which cumulatively wiped off more than 12%  from last week’s record closing high on February 19, the fastest ever such correction from a record high.

Download Full Article

Coronavirus Pullback Continues

The global equity weakness continued yesterday, with consecutive 3% drops for the S&P 500 Index for the first time since August 2015. It might be hard to believe, but exactly one week ago today the S&P 500 was making a new all-time high. What a difference seven days makes!

Yes, the uncertainty that that coronavirus outbreak has caused has sparked the weakness we’ve seen over the past week, but at times like these, it is important to remember that markets go both up and down. “The S&P 500 has pulled back more than 5% from the recent peak, which has many investors on edge,” said LPL Financial Senior Market Strategist Ryan Detrick. “Importantly, most years see stocks pull back at least 5% multiple times. Even as good as last year was, stocks still pulled back 5% twice.” 

Download Full Article   

Gauging Potential Economic Impact of Covid-19

The coronavirus outbreak—or Covid-19 —has caused significant market volatility over the past week. Our approach as always is to focus on economic fundamentals first, but the uncertainty around the scope of the outbreak has made it very difficult to assess potential impact. The situation clearly is unsettling for investors as more cases are reported across Europe and Asia, and the first case of community transmission has been reported in the United States. As this was written, the S&P 500 Index was 10% below its February 19 all-time high.

Download Full Article

 

A Letter from Managing Director, Chief Investment Office Burt White

Dear Valued Investor:

Monday was a tough day in the stock market, with the S&P 500 Index down more than 3% as the number of coronavirus cases reported outside of China jumped. Monday’s losses reversed all of this year’s gains so far for the S&P 500 Index and the Dow Jones Industrial Averages. The Nasdaq Composite Index appeared to be holding onto a small year-to-date gain through Monday’s close. After several months of relative calm in the markets, Monday’s volatility probably felt worse than it might have otherwise, but a 3% one-day decline never feels good.

Every virus outbreak is different, but looking back at other major global outbreaks over the last three decades (SARS, bird flu, swine flu, Zika, etc.), we see that the impact to the U.S. and global economies and stock market has tended to be short-lived. We think the current outbreak has the potential to follow a similar path, although we recognize there is still significant uncertainty. The coronavirus has spread more quickly than SARS, the most comparable outbreak, but the policy response also has been more aggressive, and the survival rate has been higher.

Download Full Letter

Coronavirus Fears End The Calm

Monday was a tough day in the stock market, with the S&P 500 Index down more than 3% as the number of coronavirus cases reported outside of China jumped. Monday’s losses reversed all of this year’s gains so far for the S&P 500 Index and the Dow Jones Industrial Averages. The Nasdaq Composite Index appeared to be holding onto a small year-to-date gain through Monday’s close. After several months of relative calm in the markets, Monday’s volatility probably felt worse than it might have otherwise, but a 3% one-day decline never feels good.

Every virus outbreak is different, but looking back at other major global outbreaks over the last three decades (SARS, bird flu, swine flu, Zika, etc.), we see that the impact to the U.S. and global economies and stock market has tended to be short-lived. We think the current outbreak has the potential to follow a similar path, although we recognize there is still significant uncertainty. The coronavirus has spread more quickly than SARS, the most comparable outbreak, but the policy response also has been more aggressive, and the survival rate has been higher.

Download Full Letter

The Coronavirus Outbreak Is Spreading

News that the coronavirus—known as COVID-19—has spread to South Korea, Italy, Japan, and Iran, has led to massive selling around the globe, with many European markets closing down more than 4%. U.S. stock markets are selling off hard as well, with the S&P 500 Index down nearly 3% in early trading on Monday.

“Although the fear over the pandemic is real, and the potential slowdown in the global economy could hurt 2020 corporate profits, let’s not forget that big down days are part of what long-term investors have had to accept,” said LPL Financial Senior Market Strategist Ryan Detrick. 

Download Full Article Here

Corporate America Impresses

Companies have done an admirable job growing profits—considering several stiff headwinds that they’ve faced. Despite slowing global economic growth, weakness in capital investment and manufacturing, a strong U.S. dollar, and a huge drop in energy sector profits, S&P 500 companies impressively ground out betterthan-expected overall earnings growth of 1–2 percentage points during the fourth quarter of 2019. That earnings gain may cement Q3 2019 as the trough, which we think should end talk of another earnings
recession [FIGURE 1].

Download the Full Article

Productivity Bounces

Productivity bounced back nicely in the fourth quarter of 2019, according to data from the US Bureau of Labor Statistics (BLS). Nonfarm productivity, which measures hourly output per worker, increased at a 1.4% annualized rate last quarter. As FIGURE 1 shows, this was well above the third quarter’s pace of -0.2% and a welcome rebound after the cycle’s first negative quarter since the 3.5% drop in the fourth quarter of 2015.

Download the Full Article

Global Gets Going

“Economic growth in developed international economies continued to slow at the end of 2019 and remained tepid into 2020. Efforts to boost growth through fiscal policy and structural reforms saw little success. The
benefits of aggressive monetary policy appear to be exhausted. The exit of the United Kingdom (UK) from the European Union (EU), known as Brexit, and rising populism have not helped.”

Download the Full Article