Market Condition: The market is in a confirmed uptrend despite the Coronavirus outbreak which weighs on investor sentiment.
February 10th 2020
· The Nasdaq composite and the S&P 500 are basically at new highs rising 4% and 3% for the week respectively. The Dow Jones Industrials index is also near highs, rising 3% for the week.
· Looking at the price action in many widely held stocks like Amazon (AMZN), Microsoft (MSFT), Facebook (FB), Adobe (ADBE), Alphabet (GOOGL), Netflix (NFLX), Visa (V), Nvidia (NVDA), and Advance Micro devices (AMD) you would not even know there was a serious event like the Coronavirus outbreak.
· Recently the market underwent a minor correction (4%) a very normal and healthy event.
· Earnings season is underway and we continue to witness many positive earning reactions (AMZN andMSFT for example), and even if we get a negative reaction (NFLX,FB andAMD) we are seeing immediate and quick recoveries. We are seeing positive reactions even to the most speculative names such as Uber (UBER),Tesla (TSLA), Virgin Galactic (SPCE), and Pinterest (PINS).
· The combination of widely held names and speculative names acting well speaks to the strength of the underlying market. There is still a huge demand for shares.
· The Dollar Index turned up strong this week. This signals to me that investors, which includes foreign buyers, are turning back to the safety of U.S. stocks and Bonds which increases the demand for dollars. A stronger dollar also implies a stronger U.S. economy, and may be signaling the threat to global markets from the Coronavirus, which may be a factor driving global money to the relative safety of the U.S. dollar along with Treasury bonds and stocks.
Recent Headlines:We started the year with news of tension in the middle east and moved on to the Coronavirus outbreak. Both events can weigh on the market, or give investors a reason to sell. However, it is important to pay attention to the market and filter out the headline noise. Right now, no one knows how serious this can become or if fears are overblown, but again look at what the market is telling you. We have been here before whether it has been the Swine Flu, SARS, Bird flu or the 1918 pandemic. The market takes these events in consideration and discounts them into the future. Stay tuned!
The Economy: The economic data continues to be mostly positive.
· Non-farm payrolls rose 225,000 in January exceeding even the most optimistic forecasts.
· Non-farm productivity grew at 1.4% annual rate in Q4. Hours grew at a 1.1% annual rate while output climbed at even faster 2.5% annual rate so output per hour increased.
· The January ISM non-manufacturing index rose to 55.5 a five-month high (levels above 50 signal expansion.)
· The January ISM manufacturing index jumped up to 50.9 the biggest single month jump since 2013, and finally returning to expansion territory since July 2019. (levels above 50 signal expansion.)
· On trade news total trade volume increased, imports rose at 6.8 billion, and exports rose 1.6 billion.
Summary: The above is just a brief summary of the current state of the stock market, the secular bullish trend continues. As we continue to trend upward investors should be aware that these upward trends will have many speed bumps along the way. Thus, investor should focus on their investing time frame, having realistic expectations and keep an open mind to possibly better than expected outcomes. We will continue to monitor market conditions for any significant changes.
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