Market Monitor: January 2020 Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Coronavirus spreads beyond China: A coronavirus outbreak that emerged in Wuhan, China, at the end of December spread and was declared a global public-health emergency by the World Health Organization. The death toll of 427, all but two in China, has surpassed that of SARS (severe acute respiratory syndrome) in 2002-03; 11 cases have been confirmed in the United States. Investors sold stocks as virus concerns erased the strong start to the year; bonds and other safe-haven investments rose.
  • U.S. economy slow but stable to end 2019: The economy decelerated last year to its most leisurely growth pace since 2016, 2.3%, after expanding at 2.1% in the fourth quarter. Continued strength in consumer spending and increased home construction helped keep the economy stable despite challenges posed by the production slowdown of Boeing’s troubled 737 Max and an ongoing impact on businesses from tariffs and the U.S.-China trade war.
  • Britain leaves the EU; post-Brexit terms in flux: Britain departed the European Union on January 31st after 3½ years of political battles that effectively ended with the overwhelming December victory of Prime Minister Boris Johnson’s Conservative Party. The country now is in an 11-month transition period consisting of negotiations with the EU that will determine its trading relationship with the bloc.
Selected Market Returns

market monitor

Sources: Morningstar, Altair Advisers
Our Views
  • The coronavirus will restrain China’s growth in the first quarter, which will also be a drag on the global economy. However, volatility from past infectious disease outbreaks has generally been short-lived. Once the virus is contained, we expect to see China and world GDP rebound and a year from now it should show little to no impact from a virus-caused slowdown.
  • The Federal Reserve changed little in its policy statement following last week’s meeting, suggesting officials are neither overly concerned about economic disruption from the coronavirus nor planning on lowering interest rates. We believe the Fed would step forward with an “insurance” rate cut – as the consensus of traders tracked by the CME FedWatch Tool now expects – if growth is lower than is now expected.
  • U.S. economic growth in 2019 was the slowest in three years but we are encouraged by the upward trend in key metrics in recent months. Most notably, U.S. manufacturing as gauged by the Institute for Supply Management’s purchasing managers’ index rebounded strongly in January to show growth in factory activity for the first time since July.
  • Trade tensions have ebbed with the signings of the U.S.-China phase one trade deal and the United States-Mexico-Canada Agreement (USMCA), or new NAFTA. Absent an escalation or other extenuating circumstances, we expect business spending and trade to increase as a result.U.
  • U.S. stock valuations are above the historical average but we believe they are priced fairly given the low level of both interest rates and inflation. It is important that corporate earnings improve in 2020 in order to extend this bull market.
  • The presidential election season that formally kicked off this week with the Iowa caucuses, technical glitches and all, is likely to generate periodic market swings in either direction between now and November. History shows, however, that such volatility in election years generally has little impact on longer-term stock returns.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice