February Market Commentary

US stocks sank, posting their worst month since 2009, on concerns over the economic impact of the spread of the coronavirus. After first being mostly contained to China it became evident over the second half of the month that it was spreading globally and would have a significant impact on consumers and business operations. With the vast majority of S&P 500 companies reporting fourth quarter earnings, 70% have beaten expectations. However, many companies have lowered earnings outlooks for the year over impacts from the virus. Economic news was relatively positive over the month, though it had yet to reflect much impact from the coronavirus. US hiring remained strong with 225,00 new hires in January. The unemployment rate ticked up to 3.6%, but it was a result of more people entering the workforce. Retail sales rose and consumer sentiment climbed. Manufacturing unexpectedly improved expanding for the first time since July. On the downside home sales fell by 1.3% in January. Oil descended 13.2% over the month to finish at $44.76 a barrel. In February, US stocks dropped 8.19% and are down 8.29% over the year to date.

Foreign stocks fell as well in February weighed down by the potential impact from the coronavirus. As part of its pledge to deliver on the purchase of US goods, China said it would cut tariffs on $75 billion worth of US goods in half from 10% to 5% and for other goods from 5% to 2.5%. China also launched fresh stimulus measures to support its economy. The government is planning to step in to help businesses adjust their supply chains given the work stoppages that have occurred in the country. Japan’s GDP growth contracted 6.3% in the fourth quarter much worse than the 3.9% contraction projected. The decline was driven by an increase to the national sales tax. The country could enter into a recession if there isn’t a substantial improvement in the coronavirus hampered first quarter. Industrial activity eased in Germany, France, and Spain in December. Emerging markets topped developed markets in February and over the year to date. Foreign stocks dropped 7.93% in February and have declined 10.43% for the year to date.

Bonds continued to surge in February as investors rushed to safe havens over fears of the pace of global growth. In testimony before Congress earlier in the month, Fed Chief Powell said they were watching the impacts of the coronavirus carefully, but the Fed planned to continue its wait and see approach to policy changes in the Fed’s benchmark rate. After seeing significant stock market declines to end the month Powell made a surprise statement that the Fed was ready to cut the Fed Funds Rate to help support the US economy. The 10-year Treasury yield ended the month at 1.13%, down from 1.52% to start the month, a record low. For the month, longer term bonds outperformed shorter term bonds and government bonds were the top performing sector. In February, the US bond market jumped 1.41% and is now up 2.85% for the year.