Market News – February 17, 2020

U.S. MARKETS SHAKE OFF CORONAVIRUS:  I assumed that if the coronavirus news kept getting worse, U.S. stocks would suffer.  Factories have closed, spending has been curbed and supply chains disrupted in the world’s second largest economy.  U.S. stocks are being affected, but not by much.  Among the S&P 500 companies, 5.8% of sales are generated from China, and the overall attitude seems to be that the long-term effects of the coronavirus will be relatively muted.  Markets responded positively when China’s government announced a new wave of public spending to help counteract the negative impact of the spreading disease.  U.S. corporate earnings reports are healthy and the labor market keeps reporting healthy numbers.  Whether this sanguine attitude by investors continues in light of the ongoing health crisis in China remains to be seen.

U.S. INFLATION RATE DECREASES:  The Consumer Price Index (CPI), the most prevalent measurement for how much Americans pay for everyday items, rose 0.1% in January after a rise of 0.2% in December.  Energy prices decreased 0.7% and gasoline prices decreased 1.6% (as you may have noticed).  The decrease in energy prices was caused largely by the decreased demand from China after the coronavirus outbreak.  The lowering of energy prices is probably a trend which will continue for a while.

OUR ENERGY EXPENDITURES REMAIN LOW:  As you can see from the graph below, energy expenses by Americans as a percentage of their total personal consumption expenditures (PCE) remains in historical low territories.  It spiked during the oil crises of 1973 and 1979, as you can see.  In December the percentage was 4.05%, up from the all time low of 3.65% set in February 2016.

CREDIT CARD BALANCES ARE GETTING TOO HIGH:  Credit card balances in the U.S. hit an all time high of $930 billion in December 2019, a $46 billion increase from the prior quarter.  The delinquency rate rose to 5.32% from 5.16% in the prior quarter.  Americans aged 18-29 have a delinquency rate of nearly 10% which is 76% higher than the rest of the adult population.

REFERENCES:
OUR ENERGY EXPENDITURES REMAIN LOW:  https://www.calculatedriskblog.com/2020/02/energy-expenditures-as-percentage-of-pce.html
U.S. INFLATION RATE DECREASES https://www.wsj.com/articles/u-s-consumer-prices-increased-0-1-in-january-11581600675
CREDIT CARD BALANCES ARE GETTING TOO HIGHhttps://www.cnbc.com/select/us-credit-card-debt-hits-all-time-high/