Earnings have been strong, however, COVID-19 seems to be stronger. Is there a silver lining?
Earnings
Corporate earnings for the fourth quarter of 2019 continue to impress. A warning, however, from Apple early in the week as COVID-19 is taking a toll on earnings for the company. While the first, they will likely not be the last to give negative forward guidance. 2020 earnings are projected much higher than the negative earnings rate from 2019.
Economic Data
Building permits jumped tremendously in January. After falling 3.7% in December, permits rose 9.2% in January. This is a great way to start 2020. Services PMI was not quite so promising. Services PMI came in at 49.4. Slipping into contraction for the first time since 2013. While the manufacturing contraction last year was concerning, services are far more alarming. Manufacturing represents a minority of economic production. Services, however, represent over 80% of economic production. Hopefully, ISM non-manufacturing PMI due out March 4th will reflect a more promising outlook.
COVID-19
The corona virus continues to spread and continues to bring fatalities. Concerns mounted this week as there was another development in the calculation of it’s spread. The continued adjustments raise concerns that data coming out of China may be manipulated.
Japan
There are three typical safe havens in the event of economic turmoil:
- Treasuries
- Gold
- Yen
In a contrary move this week, the Yen fell against economic fear. The interdependence of Japan and China appears to be tainting the Yen’s perceived safe haven status. While exports to China continues to be a sore point for Japan, weaker currency makes them more competitive globally. This added competitiveness may be just what Japan has needed to improve their situation. They need this advantage as the sales taxes attempted in the fall caused a major contraction in GDP during the fourth quarter.
Conclusion
COVID-19 continues to dominate the top line of market activity. Earnings have been strong, but the services statistics are very concerning. The headwinds that cleared at the end of last year have re-emerged with new faces. These concerns could lead to a correction in the market in the near term. The Federal Reserve Board, however, is securely on the sidelines. This gives the market a unique opportunity to advance, following market repricing.
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