Market Update - January 28, 2020Submitted by Jodi Vleck , Beta Wealth Group on January 28th, 2020
For the week ended January 24th, global equities suffered in unison as concerns over spread of the coronavirus from China weighed on investor sentiment. In the past, such contagions such as the SARS epidemic in the early 2000s have put a temporary damper on Chinese growth of up to 1%, which can be a concern since this coincides with the Lunar New Year celebration, a period which coincides with higher travel volumes and consequently higher consumer spending. By sector, defensive sectors such as Utilities and Telecommunications ended the week as the only sectors truly in the green, with energy and materials sectors faring the worst; consequently sectors exposed to travel such as airlines and tourism performed poorly consistent with the magnitude of the virus and potential impact on global travel surrounding the affected locations. On the economic front, home prices and sales data came in strong while the index of leading economic indicators declined.
Foreign developed market equities ended the week with declines of a slightly smaller magnitude than U.S. equities, with German and French manufacturing picking up steam. This contrasts with weakness in emerging markets, with Chinese equities falling upwards of 5% as markets sought to price in the economic impact of the virus, while oil exporters such as Russia and Mexico fared poorly due to lower crude oil prices.
U.S. bonds gained as a result of the global shift away from riskier assets toward the safety of government debt, which offered the best returns of the week and outperformed corporates, while high yield assets declined as spreads widened. Foreign bonds were similarly mixed, with developed market treasuries gaining ground while emerging market bonds declined. On the commodities front, most sub groups fell led by demand decline concerns in energy and industrial metals largely related to the specter of weaker growth in China and higher crude stockpiles; overall, crude prices dropped 7% to a shade above $54/barrel.