Markets, Economy

Weekly Kickstart (02/24/2020-02/28/2020)

2/24/20 8:00 AM

iStock-626627280.jpgStocks pulled back last week, as the S&P 500 fell by 1.25 percent to 3,337.75. That still left the benchmark index up 3.31 percent 2020-to-date, and just 1.43 percent below the new all-time closing high hit on Wednesday. Despite the recent uptick in volatility, the latest monthly fund manager survey from Bank of America Merrill Lynch revealed that bullish sentiment cooled in February only slightly, and reported cash levels actually declined to the lowest level since March 2013. The top-cited tail risks were the upcoming presidential election, a bursting of the “bond bubble,” and the coronavirus. One thing continuing to buoy investor optimism is a highly accommodative central bank. Indeed, the Federal Reserve’s sharp policy reversal last year that culminated in three rate cuts helped fuel the “risk on” trade in 2019.


Going forward a looming concern for many investors will continue to be a significant increase in inflation that puts both stocks and bonds under pressure, a trading environment not seen in quite some time. However, even though most analysts expect the median inflation gauge to pick up this year, recent Fed commentary reaffirmed that it may still not be enough to provide the “substantial and sustained” increase chair Powell said is needed before the committee even considers raising rates. The coronavirus could arguably keep a cap on inflation as well in the near-term as weaker consumer spending, business activity, and energy demand in the more affected countries provide another obstacle for the 2020 global reflation trade. Moreover, the elevated uncertainty still surrounding the coronavirus and various other potential macro shocks continues to make the next policy move from the Fed more likely to be a cut than a hike. Of course none of this means it will simply be smooth sailing for the markets throughout the rest of 2020, and some regular investors could use the still favorable conditions as another opportunity to consult with a professional financial advisor and make sure their positioning is properly aligned with their risk tolerance, retirement goals, 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 building authorizations rose, initial jobless claims remained historically low, and gauges of regional business activity continued to rebound. As for the negatives, homebuilder confidence moderated, mortgage applications fell, housing starts slid, existing home sales declined, and wholesale inflation pressures unexpectedly jumped. This week the pace of economic data remains slow but there are still a few important reports on manufacturing, housing, consumers, inflation, and U.S. gross domestic product growth scheduled to be released.


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Sources: Econoday, BofAML, Twitter, FRBSL

Post author: Charles Couch