Buss Capital Management, LLC
Trump tried to ease the mounting tensions, which did have a salutary effect.
The second half saw extreme volatility over the coronavirus outbreak. On January 21st, the first case of the coronavirus in the US was reported, in Seattle. Also, China reported 6 people died out of about 300 cases. By the last day of January, the number dead jumped to 361 out of 10,000 cases. This produced a market rout on the last market day of the month over the rapid spread of the disease and its economic impact on the world economies.
There was one consistent theme throughout the month which underpinned the market, however, and that was U.S. economic data. By almost every measure, the economy strengthened in December, as reported in January.
Here are some of the economic highlights:
Jobless claims dropped by 2,000 to 222,000 for the 7-day period ending 12/28. Layoffs are at a 50-year low.
Construction spending ticked up .6%.
ISM non-manufacturing increased in December for the 119th consecutive month, to 55% from 53.9% in November.
Unemployment was 3.5%, the lowest level in nearly fifty years. The labor participation rate increased 209,000 to 164.6 million in December.
The Producer Price Index inflation rate increased only .1% in December, lower than consensus of .2%. Year-over-year PPI was 1.3% in December.
The Philadelphia Fed Business Index increased to 174 in January from only 2.3 in December, the highest reading in eight months (anything above 0 equals expansion).
The National Association of Home Builders’ monthly confidence report decreased to 75 in January from 78 in December, but was still near the highest reading since 1999. Sales of previously-owned homes increased 3.6% in December, above consensus.
The Commerce Department reported that construction of new homes grew by 16.9% in December, beating estimates, a 13-year high and a whopping 40.8% more than December 2018. Lower mortgage rates, a 50-year low unemployment rate and a robust American consumer contributed to these results.
The only dreary economic news was the Institute of Supply Management’s report which showed that economic activity for the manufacturing sector contracted further in December to its lowest level in more than a decade. Manufacturing has been severely impacted by the China trade tensions, but there is hope that the conclusion of the Phase 1 deal should help the manufacturing sector resume its growth trajectory.
Finally, January’s results were affected by the fourth quarter 2019 earnings season. It started with J. P. Morgan and Citigroup reporting on January 14th. Both had strong earnings which helped the Dow close in the green. Within a few days, earnings reports were in full swing, and with mixed results. Some examples: Boeing down, Apple up; IBM and Nvidia widely exceeded expectations. Morgan Stanley’s earnings were strong, but CSX’s were down on a revenue miss. Comcast, DHI, Whirlpool and Travelers beat. Widely held Apple reported on 1-28-20, with earnings of $4.99/ share a 9.9% earnings surprise. Microsoft reported on 1-29-20, and quarterly earnings of $1.51/share beat by 1.6% a share. Facebook beat estimates by .9% a share. Amazon’s 4th quarter earnings were $6.47/ share vs. a $3.98 share estimate, a 62.5% earnings surprise! Tesla beat by 32%, earning $2.14, vs. $1.62 earnings expectations. Airline stock prices were hit hard by the coronavirus epidemic.
All in all, January, 2020 was a flat month. The Dow was down 1%, and the S&P down .2%. Only the Nasdaq finished in the green. What was turning out to be a positive month was completely undone by a rout on the last day of the month, with the Dow, S&P and Nasdaq, declining 2.1%, 1.8%, and 1.6% in just one day, and erasing all the progress of the month, on renewed worries over the spreading of the coronavirus to several parts of the world.