Fears of the continued outbreak of the coronavirus caused global markets to sell off last week. World governments worked to contain the virus within China’s border as Chinese markets plunged. The potential effects on the U.S. economy were felt as all three major U.S. indexes suffered their worst January since 2016.

Airlines suspended flights into and out of China . Commodity prices plunged. Oil prices have been hit particularly hard. The rush to safety caused the yield on benchmark 10-year U.S. treasury to plummet to 1.49% dropping 0.4% just in the month of January. No one believes this outbreak will result in a global pandemic. However, if there’s one thing markets hate, it’s uncertainty. How long this will last and the economic effects are still major unknowns at this point. The majority of any economic damage will mostly be contained within China, but analysts believe any spillover effect could shave 0.2% off global growth in 2020.

We’re just about half-way through earnings season and the results so far are better than anyone expected. At the end of 2019, earnings were expected to come in at a 1.0% decline. Now, it appears they may only drop 0.3%. While that is still a decline, it is significantly better than expectations a few weeks ago.

The market, on average, experiences a decline of 10% or more once a year. The last one happened in December 2019.  Whether this is the beginning of another 10% correction is anyone’s guess. But with strong earnings and the 10-year treasury below 1.5%, I would expect any decline to be short-lived.

With a solid economy and historically low interest rates, investors are finding the stock market the best place to grow their nest egg.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Consult your financial professional before making any investment decision.  You cannot invest directly in an index.  Past performance does not guarantee future results.
 
This blog was prepared by David M. Kover, CFP^® C(k)P^®

Sources:  Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal, FactSet.   Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  

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