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Weekly Market Update for February 7, 2020

by JM Hanley

The Dow was down on Friday, falling 277 points to close at 29,103. For the week, the Dow was up 3.0% (SP500 +3.2%) and year-to-date is now up 2.0% (SP500 +3.0%). The yield on the 10-year Treasury (an important interest-rate indicator) rose seven basis points, closing at 1.58%. The price of crude oil was down 2% this week to $50 a barrel – down 17% YTD.

The coronavirus outbreak remained at the forefront of investors’ minds. Encouraging signs about the development of vaccines were tempered by Beijing’s upward revisions to estimates of those sickened and killed by the virus. China’s rapid growth in the past fifteen years means it now accounts for about 14% of the world economy; at the time of the SARS outbreak in 2003 it was a small fraction of that. Economists have all cut their estimates of first-quarter GDP growth in China, but the range varies considerably. Travel and workplace restrictions look severe. On the other hand, the government may increase infrastructure outlays to offset a drop in consumer spending.

Today’s jobs report was almost entirely good news. Payrolls grew more than expected last month, and revisions to last year’s numbers was better than feared. A relatively warm and dry January helped considerably. The percent of the population with a job or looking for one reached its highest level since 2001. Wage growth was the weak spot, continuing a longstanding pattern.  But previous months’ wage growth was revised upward slightly, so annual growth came to about 3%. And from the market’s perspective, slow wage growth contains a silver lining. Inflation is unlikely to accelerate under such conditions, which enables the Fed to keep interest rates low.

Earnings at Google (Alphabet) were somewhat disappointing. The ad business did slightly worse than expected and hardware experienced an acute decline, though the cloud computing division did well. An increase in hiring also put pressure on profit margins. Centene, which manages privatized Medicaid and Medicare plans, also did slightly worse than expected due to a bad flu season. All eyes will now turn to its annual meeting with investors next month, when it will offer its first profit forecast since its purchase of competitor WellCare closed.

About 55% of SP500 companies have now reported quarterly results. About 70% of companies have had better earnings than expected. Across the index, earnings have grown about 5% in aggregate since last year.  Air Lease, Alibaba, CVS, Fidelity Information Services, and Euronet Worldwide will report earnings next week.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss.

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