Receive Weekly Market Updates via Email

shadow

Weekly Market Update for January 31, 2020

by JM Hanley

The Dow was down on Friday, falling 603 points to close at 28,256. For the week, the Dow was down 2.5% (SP500 -2.1%) and year-to-date is now down 1.0% (SP500 -0.2%). The yield on the 10-year Treasury (an important interest-rate indicator) fell eighteen basis points, closing at 1.51%. The price of crude oil was down 5% this week to $51 a barrel – down 16% YTD.

After markets enjoyed months of almost uninterrupted upward progress, the outbreak of Coronavirus in China has given investors pause.  Thus far, the outbreak has mostly been confined to China, though investors are just as unsure of its ultimate reach as everyone else. If the situation remains as it is, Beijing’s aggressive efforts at containment and curtailed international travel could shave up to two percent off the Chinese economy’s growth in the first quarter. Afterwards, the Chinese government will probably lower interest rates and spend money to re-stimulate the economy through the rest of the year. That should blunt the impact. Obviously the economic impacts will be worse if the virus spreads more widely.

At least one source of geopolitical volatility is foreseeable. If a moderate Democrat prevails in next Monday’s Iowa caucuses, stocks of banks and healthcare firms will probably rise. If a more liberal candidate comes out on top, the reaction will probably be the opposite. Market reaction to such headlines often turns out be exaggerated in any event.

Most of the largest technology firms reported earnings this week. Strong sales of the new iPhone model helped Apple report better-than-expected results, but analysts were also encouraged by strong growth in new products like the firm’s signature watch and headphones.  Services, which includes television streaming, cloud computing, and technology support, also did well. This steady business is viewed as important for the firm’s future growth.  Amazon had an excellent Christmas season as well. More outside merchants using the firm’s marketplace are paying Amazon to ship their goods, now that many orders can be delivered to Prime merchants in just one day.  Wall Street was also happy to see that a slowdown abated at the cloud computing business, where the firm generates nearly two-thirds of its profits.

The market was less enamored with Visa. Volatility in the world’s major currencies has declined significantly.  Visa earns money by “hedging” its overseas transactions when currencies are volatile. In the absence of volatility, growth in earnings may be lower than originally thought. Card transactions are still growing fast and the business remains otherwise healthy. Facebook was also a slight disappointment. The cost of legal settlements has begun to add up, just as new privacy rules from Europe, Apple (which controls iPhones), and from Facebook itself make it more difficult to target ads.

About 20% of SP500 companies have now reported quarterly results. Earnings were expected to be unchanged from last year, but instead have grown about five percent. Revenues have grown about a percent better than expected.  Google, Centene, and Euronet Worldwide, among other portfolio companies, 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.