Stock market volatility continued last week while Treasury bond yields reached all-time lows.

Markets remain under pressure from the uncertainty caused by the coronavirus outbreak and the potential economic disruption it may cause.

Dow Jones1.8-9.03.2
S&P 5000.6-7.79.4
MSCI EAFE0.4-10.60.2
MSCI Emerging Markets0.7-9.0-1.3
10-year U.S. Treasury0.761.922.68
30-year U.S. Treasury1.292.393.01

Source: Janney ISG, Bloomberg. Data as of 3/6/20.

While acknowledging that there is considerable uncertainty concerning the ultimate economic impact of this outbreak, our base case remains that it will be a temporary economic shock. The U.S. economy is fundamentally sound and well positioned for future economic growth, despite the potential for near-term disruption to economic performance (discussed below). We continue to advocate owning a well-diversified portfolio with the proper exposure to stocks and other risk assets. 

A Market Friendly Super Tuesday

Stocks did take time to celebrate Joe Biden’s victory on Super Tuesday, when he emerged as the delegate count leader. He is now the presumptive Democratic nominee and the Democratic favorite in the betting markets.A Biden presidency would be perceived as benign by the markets, relative to Senator Bernie Sander’s far-left leaning agenda.

Sander’s Medicare for All proposal would be a major threat to private health insurers and a threat to the profitability of health care providers and drug makers through lower reimbursements and price caps. Sanders also has more extreme proposals that would be more disruptive to the Energy, Technology, and Financial sectors.

U.S. Economic Developments and Analysis

The economic releases last week continue to show a healthy economy, which underpins our position that the U.S. economy is well positioned for any potential disruption that the coronavirus outbreak may cause.

While the ISM Manufacturing Index (a timely business survey) suggests that factory activity lost momentum, it remains consistent with positive manufacturing growth. In contrast, the ISM Non-Manufacturing Index (NMI) rose to its highest level in a year. It suggests that services activity picked up, putting the economy on a firmer footing, ahead of any potential impact from COVID-19. The combined latest readings of the NMI and the ISM Manufacturing Index correspond to 1.9% annual economic growth, which is only a modest departure from the 2.1% annual growth in the fourth quarter.

There is, however, downside risk to the near-term outlook, as spreading of the virus (or fear of it spreading) prevents people from engaging in social activities, travel, tourism, etc. The economic data in the spring will better reflect the impact of coronavirus than the data in February.

Jobs Market Firing on Many Cylinders Prior to COVID-19

Nonfarm payrolls increased 273,000 in February, about 100,000 more than expected. Moreover, the prior two months were revised up by a significant 85,000. Additionally, the average workweek lengthened by 0.1 hour to 34.4 hours. The unemployment rate slipped from 3.6% to 3.5%, returning to the lowest level since 1969.

The year-over-year change of average hourly earnings eased to 3.0% from 3.1%, the least since July 2018. Important, because this shows muted wage inflation that is allowing the Federal Reserve to respond aggressively to the coronavirus threat—evidenced by Tuesday’s pre-emptive interest rate cut.

Overall, this report indicates that the labor market was in excellent shape before the coronavirus outbreak concerns.

This report is provided for informational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. Past performance is not necessarily a guide to future performance.


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