Market News – January 3, 2020

WATCHING AN OUTBREAK:  We have seen this movie before.  In real life, we have seen flu outbreaks originate from the Far East as well as SARS.  There have also been lots of movies on this subject, so it is easy to imagine the worst.  As the spread of this disease unfolds, and more facts come out, the markets have continued to be on edge.  There is a particularly ominous site that is tracking this disease (see here), and while it does seem to be largely contained to China and its surroundings, it has traveled the globe.  However, we still have no idea how much this virus will travel from person to person outside of China as it appears that many cases outside of Wuhan province are people who have traveled from there.  It is still far from contained, and investors have been rattled.

CORONAVIRUS AND GLOBAL DATA JAR THE MARKETS:  Stock markets sustained significant losses this week.  Fear of the implications of the Coronavirus was the main mover.  Investors are weighing how much China’s economy will be hit, and how that will affect all the companies on the stock exchanges.  It did not help that Boeing reported its first annual loss in over twenty years, and bellwethers Caterpillar and 3M had less than ideal quarterly reports and guidance.  It all added up to a week the likes of which we have not seen in a while.

HOUSEHOLD SPENDING SLOWS A BIT:  Personal consumption rose 0.3% in December after a 0.4% rise in November.  Spending for all of 2019 was up 4%, the smallest annual increase in three years.  Personal income rose 2.5% in 2019 compared to 2018, the smallest annual increase in three years.  With historically low unemployment, wage increases should be accelerating, not slowing.

U.S. ECONOMIC GROWTH REMAINS SOLID OVERALL:  The U.S. Gross Domestic Product grew 2.3% in 2019 according to the Commerce Department’s preliminary estimates.  This is the slowest pace since 2016 but still in line with the average growth rate during this long recovery.

ELECTION YEAR RETURNS:  Since 1928, the average return in the S&P 500 during an election year has been 11.3%.  In the year after, it has been 9.9%.  So far this year, we are at about break even, but we have a long way to go.

REFERENCES:

 ELECTION YEAR RETURNS: S&P data (c) 2019 S&P Down Jones Indices LLC, a division of S&P Global.
HOUSEHOLD SPENDING SLOWS A BIT:https://www.wsj.com/articles/u-s-consumer-spending-rose-in-december-11580477531
U.S. ECONOMIC GROWTH REMAINS SOLID OVERALL:  https://www.wsj.com/articles/fourth-quarter-economic-growth-11580386835