January Market Commentary

US stocks climbed over the first half of the month on optimism about global growth, but fell over the second half on concerns over the coronavirus outbreak. Investors feared the virus would slow the world economy and in turn negatively impact corporate earnings. Corporate earnings for the fourth quarter have been strong to date with 70% of S&P 500 companies who have reported earnings posting results that have beaten expectations. Economic news remained positive in January. US employers added jobs for a 10th straight year in 2019. December payrolls increased 145,000, slightly below estimates, but the unemployment rate remained at 3.5%. Retail spending rose 0.5% in December, the best pace in five months and business activity reached a ten-month high. New home construction rose to the highest level since 2006 and existing home sales reached their highest level of the year in December. The US economy grew at a 2.1% pace in the fourth quarter resulting in a 2.3% pace for 2019. The rate of growth is relatively in line with the levels seen since the current expansion began in 2009. On the downside, manufacturing continued to weaken with the December reading of manufacturing activity the lowest since 2009. In January, US stocks ticked down 0.11%, but have gained 20.53% over the trailing year.

Foreign stocks followed a similar path as US stocks in January, but dropped further on fears over the coronavirus. China’s central bank announced it would reduce the required amount banks would need to hold in reserve, a supportive move for the economy. Chinese industrial production grew 6.9% in December outpacing estimates for the fastest expansion in nine months, while economic growth eased to 6.1% for 2019 in line with expectations. Germany’s growth hit a six-year low of 0.6% in 2019 dragged down from weakness in the manufacturing sector. After their most recent meeting the European Central Bank elected to keep their benchmark interest rate at its current level and said there will likely be negative interest rates for some time. Similarly, the Bank of England elected to keep its benchmark rate steady at its most recent meeting. The UK finally left the EU at the end of January and now enters into a transition period where it will negotiate the details of its future relationship with the EU. Emerging markets trailed developed markets in January and over the trailing year. Foreign stocks dropped 2.72% in January, but are up 10.62% over the trailing year.

Bonds jumped to start 2020 as investors flocked to safe haven investments on global growth concerns. The Fed made no changes to its benchmark interest rate at the conclusion of its January meeting stating they are “comfortable with (their) current policy stance.” The 10-year Treasury yield ended the month at 1.52%, down from 1.92% to start the month, its lowest level since early September. For the month, longer term bonds outperformed shorter term bonds and government bonds was the top performing sector. The US bond market surged 1.42% in January and is up 7.39% over the trailing year.