The start of 2020 has brought increased stock market volatility. The uncharacteristically calm market environment we experienced for much of the past four months was bound to end but identifying the catalyst for a potential sell-off became more difficult after the U.S.-China phase-one trade deal was signed.
Unfortunately, the Coronavirus has provided the catalyst for turbulence which has grabbed the stock market’s attention. The Chinese economy is being negatively impacted by business closures and travel restrictions, which may have spillover effects on the rest of the world, given the size and global interconnectedness of that economy.
In his post-meeting remarks January 30, Federal Reserve (Fed) Chair Jerome Powell acknowledged the risk to the U.S. and global economies from the coronavirus outbreak. He also slightly downgraded the Fed’s assessment of consumer spending. After the Fed’s announcement, the bond market factored in one quarter-of-a-point interest rate cut this fall. While that action isn’t a given, well-contained inflation would allow the central bank room to make interest-rate adjustments more easily if needed.
The fundamentals of the U.S. economy and stock market—interest rates, inflation, wage growth, and jobs—still appear favorable overall. Although S&P 500 Index companies have reported minimal earnings growth during fourth-quarter earnings season, commentary from corporate America over the past several weeks has helped solidify the outlook for corporate profits in 2020. It still appears profits could be the primary driver of any potential stock market gains over the next 11 months.
The 2020 election could negatively impact certain segments of the market due to policy uncertainty. In addition, the United Kingdom will officially leave the European Union at the end of this year as well. Finally, trade tensions with China could flare up again creating a setback from progress made in late 2019.
Bottom line, there may be some bumps in the road, but the economic expansion may continue through 2020 and help power forward this nearly 11-year-old bull market.
If you have any questions or concerns about your strategy, please feel free to reach out to learn how we are handling risk in our investment portfolios.
Sincerely,
Bryan Foronjy, CFP®
Founder and Principal Wealth Manager
Foronjy Financial
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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Economic forecasts set forth may not develop as predicted.
All data is provided as of January 31, 2020.
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