Posted February 28, 2020

Coronavirus Concerns

January is historically one of the better months of the year for the stock market as it is the biggest month for inflows from retirement plans.  Coming off one of the best years for stock market performance in the last 20 years, the new year began where the old year ended, with the market moving to more new all-time highs.  Market participants continued to celebrate phase one of the China trade as many believe it could reignite global growth.  Early in the month the S&P 500 hit a new all-time intraday high for an amazing 8 consecutive trading sessions.  The high for the month was hit on the 22nd with the S&P 500 up more than 3% for the month, but then concern about the Chinese coronavirus slowing global growth started to weigh on the market.  A large decline on the last day of the month, the worst day in 5 months, erased what had been a nice monthly gain and left the S&P 500 down .2% for the month.  The yield on the 10 year Treasury dropped 21% in January and the price of a barrel of oil fell 15%. 

The month began with a rally to new all-time highs before news that the U.S. had killed an Iranian general took the gains away.  Iran retaliated by launching missiles at various U.S. locations in Iraq.  Overnight Dow futures plunged more than 400 points, but by the time the market opened we learned that no Americans had died.  After President Trump said he believed Iran was “standing down”, a relief rally took the market to another new all-time high. This began an 8 day period where we saw a new S&P 500 intraday high every single day.  At the end of the first full week of trading the S&P 500 had gained 1.1%.

The second full week of the month was the best performer as the Chinese and U.S. officially signed the new trade agreement.  We also learned Chinese economic growth in 2019, while an impressive 6.1%, was the slowest in 30 years.  That may go a long way to explaining why China was driven to ink a trade agreement.  The third full week was shortened by the Martin Luther King Jr holiday and the spreading coronavirus out of China weighed on the markets.  The S&P 500 did hit a new all-time high mid-week on strong earnings reports, but by week’s end coronavirus concerns had sent the widely followed index to a 1% loss.  The last week of the month we continued to see strong earnings reports from major companies with bellwether Apple rallying to a new all-time high, but the market couldn’t shake concerns about the coronavirus and decline 1.5% on Monday.  There were a couple of rally attempts during the week but a big selloff on the last day of the month sent the week down 2.1% and into the red for the month. 

February is the only month with an average return over the last 90 years of 0%, but the month has finished with a gain 53% of the time.  It looks like this month is shaping up to be a battle between quarterly earnings reports, which have thus far been stronger than expected, and the spreading coronavirus.  The virus news is likely to get worse before it gets better.  During the 2018-2019 flu season over 60,000 people died worldwide.  The coronavirus has thus far killed around 200, so it is not so much the death toll as it is the uncertainty of what might happen.  If the virus is contained and/or a vaccine is developed, it could become 2020’s version of The Bird Flu.  If it continues to spread and the death toll continues to mount, it could disrupt global growth and negatively impact corporate earnings.  The China trade deal has given the market an upward bias, so we would continue to be buyers on any tradeable decline coming from the virus outbreak. 

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