Dear Valued Investor,
The start of 2020 has brought increased stock market volatility. The uncharacteristically calm market environment we experienced for much of the past four months was bound to end, but identifying the catalyst for a potential sell-off became more difficult after the U.S.-China phase-one trade deal was signed. Not even the recent major escalation in the U.S.-Iran conflict could knock down this market. Unfortunately, the coronavirus appears to have done the trick.
That story is still developing, but so far, the coronavirus has been less deadly than the SARS outbreak, one of the best historical comparisons we have. However, the speed with which the illness has spread within China has grabbed the stock market’s attention. Analysis of prior outbreaks such as SARS, bird flu, and swine flu—and the aggressive ongoing containment efforts—suggests the global economic impact likely may be modest and short-lived, although the situation is unpredictable at this stage. The Chinese economy is being negatively impacted by business closures and travel restrictions, which may have spillover effects on the rest of the world, given the size and global interconnectedness of that economy.
The fundamentals of the U.S. economy and stock market—interest rates, inflation, wage growth, and jobs—still appear favorable overall. Although S&P 500 Index companies have reported minimal earnings growth during fourth-quarter earnings season, commentary from corporate America over the past several weeks has helped solidify the outlook for corporate profits in 2020. It still appears profits could be the primary driver of any potential stock market gains over the next 11 months.
Investing fundamentals may continue to help support stocks over the balance of the year, though the magnitude of potential gains from current levels may be limited. In addition, there are some risks to consider beyond those already mentioned: The 2020 election could negatively impact certain segments of the market due to policy uncertainty; the United Kingdom will officially leave the European Union at the end of this year; and trade tensions with China could flare up again.
Bottom line, there may be some bumps in the road, but the economic expansion may continue through 2020 and help power forward this nearly 11-year-old bull market.
On a Personal Note…
Maybe I’m getting old, but it seems like school’s close way too often these days for snow. However, I don’t mind a good snow say from time to time. It gives me a chance to complain to my kids how in my day we never had school close for snow and I had to walk both ways up hill. Then I go outside and shovel so I can later complain to my wife about my back. She promptly reminds me that she is from Minnesota and that what we call snow and cold is merely a warm Spring to her, then the kids laugh at Dad for being a wuss. I am learning that aging is full of opportunities for sympathy, however my family still gives me none which is probably a good thing in the long run. Stay warm out there.
Thank you for your business, and please contact me if you have any questions.