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Market Commentary for the week ending January 25th, 2020
- Stocks around the world fell as fears heighten that the virus in China may slow economic activity
- Real estate, gold, and bonds served as their traditional safe-havens for investors
- Existing home sales rise indicating a continue strong housing market
Market Performance Summary
Notable Market Headlines
Stocks fell around the world as the coronavirus originating in China spread there and throughout other countries including the United States. China’s government is struggling to deal with the challenges this is presenting all of which is resulting in a slowdown in consumer spending in China that is threatening to have a meaningful economic impact.
At the close of the week large U.S. stocks weathered the selling pressure best falling just -0.7% as measured by the S&P 500. The NASDAQ faired even better slipping just -0.5% and the Dow Jones Industrials were a little worse off -1.0%. Small U.S. stocks suffered much steeper losses down -2.4% falling into negative territory for the year at -0.2% while large stocks are still holding onto a nice year-to-date gain of +2.2%.
The various sectors in the market saw meaningfully different performance. The leading sector, by a wide margin this week, were utilities higher by +3.1% and now up year-to-date by a very impressive +5.8%. Technology and telecom stocks also posted gains for the week coming in at +1.0% and +1.1% respectively but everything else was lower including healthcare stocks down -2.1%.
International stocks were all down as well with developed country stocks falling on average by -1.0%. European markets suffered slightly larger losses with a couple of the bigger losers being France down -1.8% and Spain’s market losing -1.7%. Emerging markets felt the greatest selling pressure, on average down -3.0%, due to the sharp losses in China, the biggest of the emerging markets, dropping -5.7% as the coronavirus spreads. Hong Kong’s market was right behind China’s falling -5.4%. Both are negative year-to-date with China’s the worst at -3.0%.
The performance of the alternative asset classes was mixed this week with nice gains in the price of Gold and real estate stocks, both considered to generally be safe havens for investors, rising +1.1% and +0.9% respectively. A sharp drop in the price of oil drove commodities down a sharp -4.4%.
Bonds held up well gaining +0.7%. U.S. government bonds did even better gaining +1.0% and are now up +2.0% for the year comparable to large U.S. stocks a better than most everything else.
Intel (INTC), the giant chipmaker with nearly a $300 billion market value, reported quarterly results with what management described as the company’s best quarter in its 51-year history. Revenue came in at $20.2 billion with earnings per share of $1.52 both of which topped Wall Street estimates. As the accompanying graph shows the company has struggled to maintain growth in sales in recent quarters. Management did say the next quarter looks good but there could be challenges later in the year. Furthermore analysts fear continued pressures from competitors such as Advanced Micro Devices (AMD). All of this news was well-received by investors pushing the stock higher by +14.8% making it the best performing among the S&P 500 for the week.
Homebuilders Lennar (LEN) and D.R. Horton (DHI), two of the largest in the country, both gained +5.7% for the week on another report of the strength of the housing market. Existing home sales reached a new 2-year high closing 2019 strong as inventories remain tight combined with low unemployment and a generally strong economy. Year-to-date Lennar is up an incredible +19.5% but is still below its January 2018 high while D.R. Horton is higher by +10.5% for the year.
Many energy stocks fell in tandem with the sharp drop in the price of oil for the week. A couple of the biggest losers were Cabot Oil & Gas (COG) and Marathon Oil (MRO) down -15.2% and -10.6% respectively.
Wynn Resorts (WYNN), along with other casino operators with operations worldwide, suffered big losses on concerns the Coronavirus with slow travel to China. Wynn and others with operations in Macau, the world’s largest gambling hub, are likely to face significant declines in business. For the week Wynn’s stock was down -11.5%, the biggest losing stock in the group.
Economic Indicator - Reported
Existing home sales were higher by +3.6% in December closing 2019 near a 2-year high at 5.54 million annually. The Midwest was the only region recording a decline for the month which also saw a full-year decline while the South showed some of the strongest gains for the year. Low mortgage rates and low unemployment are both helping fuel the housing market.
The Leading Economic Indicators index fell -0.3% in December after a small gain in November but remains at a relatively high level.
Economic Indicators – Upcoming
The following economic data are expected in the coming week:
- New Home Sales
- Durable Goods Orders
- Case-Shiller Home Price Index
- Consumer Confidence Index
- Consumer Spending