U.S. and World News
Investors across the world have started to panic as new cases of the coronavirus have started to flare up outside of China. The virus has spread to 49 countries, with epidemics emerging in Iran, Italy and South Korea, where the number of people diagnosed with the virus is growing at a rapid pace. The World Health Organization held a press conference this morning where they declared that the virus poses a “very high” risk at a global level and earlier this week the Center of Disease Control warned that the coronavirus is “likely” to spread across the United States. The CDC reported on Wednesday the first case of “community spread” within the United States when a California man contracted the virus without having any prior travel links or contact with any people diagnosed with the virus. In a press conference Wednesday night, President Trump told reporters that the risk to Americans was “very, very low” and placed Vice President Mike Pence in charge of the U.S. response. Last night, Switzerland announced a ban on all events over 1,000 people and Saudi Arabia stated that foreign visitors to Mecca is no longer allowed as countries are increasingly taking stronger measures to prevent the spread.- President Donald Trump traveled to India earlier this week to continue ongoing trade negotiations with Indian Prime Minister Narendra Modi. The President and Modi have agreed to “promptly” conclude trade negotiations that could potentially lead to a bilateral U.S. – India trade deal. During the trip, the United States secured a sale of $3 billion in military equipment to India. The two countries have been communicating for months regarding tariff rates, farm goods, medical devices, and digital trade. President Trump stated earlier this week that “India is probably the highest tariff nation in the world”.
Markets
- Coronavirus fears gripped markets this week triggering steep declines. The S&P 500 fell 11.44% and closed at 2,954. The Dow Jones dropped 12.26% and closed at 25,409. Year-to-date, the S&P is down 8.24% and the Dow Jones is down 10.51%.
- Yields dropped to record lows this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.94% and 1.16%, respectively.
- The spot price of WTI Crude fell this week. Prices dropped 15.19% and closed at $45.27 per barrel. Year to date, Oil prices are down 25.86%.
- The spot price of Gold fell by 3.55% and closed at $1,585.00 per ounce. Year to date, Gold prices are up 4.46%.
Economic Data
- Initial jobless claims rose by 8,000 to 219,000 and the four-week moving average of claims rose 1,000 to 210,000. Claims rose by 4,000 in Illinois and New York.
- Personal consumption rose by 1.7%, in-line with expectations
- New orders for durable goods fell by 0.2% versus expectations for a decline of 1.4%
- Durable goods ex-transports rose by 0.9% versus expectations for an increases of 0.2%
- Core capital goods orders rose by 1.1% versus expectations for an increase of 0.1%
- Core capital goods shipments rose by 1.1% versus expectations for no change
- The Conference Board index of consumer confidence rose 0.3 points to 130.7 versus expectations for a reading of 132.2
- Sales of new single-family homes increased by 7.9% to a seasonally-adjusted annualized rate of 764k units versus expectations for a reading of 718k
- Pending home sales rose by 5.2% versus expectations for an increase of 3.0%
- Personal income rose by 0.6% versus expectations for an increase of 0.4%
- Personal spending rose by 0.2% versus expectations for an increase of 0.3%
- The PCE price index rose by 0.1% versus expectations for an increase of 0.2% and the year-over-year rate rose 1.7% versus expectations for an increase of 1.8%
- The core PCE price index rose by 0.1% versus expectations for an increase of 0.2% and the year-over-year rate rose by 1.6% versus expectations for an increase of 1.7%
- The University of Michigan’s index of consumer sentiment rose 0.1 points to 101.0 versus expectations for a reading of 100.7
Fact of the Week
The S&P 500 and the Dow Jones posted their largest one-week losses since 2008. Despite this fall, the S&P is up 6.1% over the last year. (Source: Bloomberg)
Rich Gartelmann, CFP® – (630) 844-5730 – rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson, CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
Mike Demski – (630) 966-2430 mdemski@oldsecond.com
Jacqueline Runnberg, CFP® – (630) 966-2462 jrunnberg@oldsecond.com
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Markets across the globe have sold off rapidly this week as a result of uncertain impacts of the coronavirus (COVID-19). At the time of this writing, the S&P 500 is down over 10% from its high which is an official indication of a market correction. The S&P 500 was up 30.5% in 2019 and an additional 5% through February 19th of this year. The market reaction is a result of a multitude of companies including Apple and Microsoft that announced they would miss their fiscal year 2020 revenue and earnings figures as a result of supply chain disruptions and lower demand. Many other companies have stated that they simply do not know what the impact will be to their financials due to the rapidly changing circumstances and uncertainty around the virus. Markets typically react negatively to high levels of uncertainty and this situation is no different. 
Apple is the first major U.S. company to announce that they will not meet their revenue projections for the current quarter as a result of the coronavirus outbreak, now called COVID-19. China announced that they would consider direct cash infusions and mergers to bail out its airline industry, which is estimated to be hit by losses of $28 billion in 2020. Data releases from China this morning show that Chinese car sales fell by 92% so far in the month of February. As of this morning, there have been more than 76,000 cases, and 2,247 deaths according to the World Health Organization. China had also reported 271 infections among prisoners, raising additional questions about the spread of the virus. Outside of China, there are 1,152 cases across 26 countries, including eight deaths. Coronavirus cases have increased rapidly in South Korea and Iran recently, with the number of cases in South Korea doubling overnight to 204. World health officials announced that there are 18 new cases and four deaths in Iran within just two days. Two clinical trials are currently underway to test treatments for the virus and preliminary results are expected to be released in three weeks.
Researchers across the world are quickly working to develop a vaccine for the coronavirus that has infected more than 64,000 and has killed 1,380, more than double the figures from last week. About 80% of patients infected with the coronavirus show mild symptoms of the common cold, while about 15% end up with a pneumonia and 3% to 5% need intensive care, a World Health Organization official told reporters. Health and Human Services Secretary Alex Azar told CNBC that the American public’s risk of getting infected with the coronavirus is “very low”, but that could change “rapidly”. The primary issue with the coronavirus is the transmissibility, measured by the R0, with a measure of R1 indicating that an infected person would transmit it to one other person throughout the course of the infection. According to a variety of sources, the coronavirus is around an R4, while the common flu is R1.3 and SARS was R2. The virus is expected to negatively affect the Chinese economy in the first quarter as economists are estimating a growth rate around 4%, compared to pre-virus forecasts around 6%.