Markets, Economy

Weekly Kickstart (01/27/2020-01/31/2020)

1/27/20 8:00 AM

iStock-626627280.jpgStocks pulled back last week, as the S&P 500 fell by 1.03 percent to 3,295.47. That still left the benchmark index up 2.00 percent 2020-to-date, and just 1.03 percent below the all-time closing high. Concerns about a new coronavirus outbreak originating in China weighed on equities ahead of the weekend, but it is still too early to know how severe this situation will become and whether any economic impact will mirror the 2003 SARS epidemic. Looking past the near-term price action, another issue worth mentioning is that in December we learned that fund managers surveyed by Bank of America Merrill Lynch saw the S&P 500 rising to 3,333 by March of this year. Right before Friday’s coronavirus selloff the broad index eclipsed this target two months early, and the January update of the BofAML poll revealed that professional investors remain “bullish but not euphoric.” Moreover, respondents generally see no immediate end in sight for the multi-year rally and now anticipate the S&P 500 reaching 3,400 by the third quarter, only 3.07 percent above Friday’s close. Economic growth expectations also continued to improve in January and more fund managers are positioned for a steeper yield curve.


Many unknowns remain, though, and the U.S. Presidential election, escalating trade conflicts, and a bursting of the “bond bubble” were the top-cited “tail risks” managers were worried about at the time of the survey. Further, reported cash allocations this month fell to a 6-year low but remained above the level the report’s authors suggest would signal “unambiguous greed.” Similarly, a net 32 percent of surveyed managers said that they are overweight equities, the highest reading in more than a year but below the 50 level that has often been exceeded ahead of prior “tops” in the market. In summarizing their own outlook, the report’s authors said “we stay irrationally bullish risk assets,” which is in line with the typical sentiment expressed on Wall Street this month. Indeed, although many institutional investors acknowledge that the latest run up in stock prices has been substantial, few have yet to see enough reasons to aggressively fight the trend and they instead remain cautiously optimistic until conditions change. Whether the coronavirus will provide such a catalyst to meaningfully shift fund manager sentiment remains unknown. However, Friday’s uptick in volatility after a period of relative tranquility could serve as another reminder for regular investors to routinely work with a professional financial advisor and make sure their positioning is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last (holiday-shortened) week, the positives included that existing home sales jumped, and the number of Americans making first-time claims for unemployment benefits held below 300,000 for the 255th consecutive week. As for the negatives, leading indicators deteriorated, housing affordability remained a challenge, and gauges of U.S. business activity continued to send mixed signals. This week the pace of economic data picks up with several important reports on housing, manufacturing, consumers, employment, inflation, and gross domestic product growth scheduled to be released, along with a potentially market-moving monetary policy announcement from the Federal Reserve on Wednesday.


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Sources: Econoday, BofAML, FRBSL

Post author: Charles Couch