Market News – March 2, 2020

DOWN FROM THE HIGH:  It took a virus.  On February 19 the S&P 500 closed at a record high.  American stocks in particular seemed to be covered in Teflon as none of the coronavirus news was sticking, and stocks continued to climb.  Since then, the S&P 500 suffered its fastest ever 10% decline from an all-time high.  Markets hate uncertainty, and with the coronavirus and its economic effects, we have significant uncertainty.  Markets did what they always do when faced with uncertainty that could lead to negative economic results.  The declining market began on Monday after news broke about the virus spreading in Italy.  On Tuesday, the U.S. Centers for Disease Control issued a warning that the virus is expected to spread widely throughout the U.S, and that schools and businesses should be prepared.  Nothing since then has given investors reason to calm down except the sense that maybe this is overblown and it is the dip they have been waiting for.  Some technical analysts have been noticing patterns that support the conclusion that those investors (buy on the dip) were beginning to act on Friday and that we are not in a panic-selling environment, at least not yet.

In the week ahead, there will be lots of new political (Super Tuesday primaries) and economic news, but it is likely that those stories will have little effect on the markets.  The coronavirus uncertainty has to play out.  Go to this site for current statistics (which, by the way, show a reduction in the number of active cases since mid February despite the geographic spread, from 57,990 on February 15 to 41,310 as of February 29).  Be very careful about making short term moves that depend on the market continuing to go one way or the other.  The market went down quickly last week, and although that trend might continue, trying to time when the crisis ends, and getting back in at just the right time is a very difficult if not impossible thing to do.  Regarding the news, watch for reductions in the rate of the spread, fed action, and scientific progress as news that could end the spiral and worry that gripped the markets last week.

BUSINESS SPENDING IN THE U.S. IS UP:  A closely watched metric for business spending is what is called core capital goods orders, or new orders for nondefense capital goods excluding aircraft.  By that measure, business investment increased 1.1% in January.  This came, of course, on the heels of the signing of the initial trade deal between the U.S. and China.  The coronavirus also emerged that month, but it has obviously affected economic activity more in February than in January.  However, it is a good sign that the trade deal is having the affect of bringing U.S. businesses out of their tariff and trade-war-induced sluggishness of most of 2019.

OIL PRICES FALL, AND PERHAPS PRODUCTION WILL AS WELL:  As the general coronavirus fears spread, oil prices fell.  The fear, of course, is that demand for oil will fall as more and more people grow concerned about travel and other economic activity.  In response, several OPEC member countries are publicly leaning toward a bigger-than-expected production cut during their upcoming meetings scheduled to begin on March 5.  Saudi Arabia already cut its daily output to China by 500,000 barrels per day.

U.S. INCOME AND SPENDING INCREASED IN JANUARY:  Consumer spending in the U.S. increased 0.2% in January, which was a bit less than expected.  One reason was the mild weather which meant people spent less on heating and warm clothing.  Spending had increased 0.4% in December.  Meanwhile, income rose by 0.6% in January after only increasing 0.1% in December.  The income gains were broad-based, with some of the increases coming from January Social Security adjustments and minimum wage increases in some states, but also by the tight labor market pressuring employers across the income spectrum.

REFERENCES:
DOWN FROM THE HIGH: https://www.wsj.com/articles/the-week-that-wiped-3-4-trillion-off-the-stock-market-11582891223; https://www.marketwatch.com/story/dows-plunge-not-triggering-panic-like-behavior-on-nyse-nasdaq-shows-signs-of-dip-buying-2020-02-28; https://www.cnbc.com/2020/02/27/dow-futures-fall-100-points-after-another-massive-rout-amid-coronavirus-fears.html
U.S. INCOME AND SPENDING INCREASED IN JANUARY:  https://www.reuters.com/article/us-usa-economy/u-s-consumer-spending-slows-in-january-income-surges-idUSKCN20M24P; https://www.calculatedriskblog.com/2020/02/personal-income-increased-06-in-january.html; https://www.bea.gov/news/2020/personal-income-and-outlays-january-2020
BUSINESS SPENDING IN THE U.S. IS UP: https://www.wsj.com/articles/u-s-durable-orders-fell-slightly-in-january-11582810338
OIL PRICES FALL, AND PERHAPS PRODUCTION WILL AS WELL: https://www.businessinsider.com/opec-leaning-towards-larger-oil-cuts-as-virus-hits-prices-demand-sources-2020-2?r=DE&IR=T