2/10/20 Market Notes
Investors refocused their attention on the risks associated with the coronavirus, whose death toll and infection rate now surpass that of the 2003 SARS virus. As a result, the Dow Jones Industrial Average fell nearly 1% on Friday, while the S&P 500 and Russell 2000 lost about ½%. Eight of the eleven sectors comprising the S&P ended lower, led to the downside by the Materials and Technology sectors. The benchmark Ten Year Treasury Yield dipped below 1.6% again, while the U.S. dollar strengthened slightly. In spite of Friday’s rut, major stock indexes provided investors with solid gains last week, with the DJIA rising 3% for the week, and the S&P 500 gaining 3.2% over the same period. As market participants debate whether or not stocks have gotten ahead of themselves and are thereby overdue for a pull-back, an article in Barron’s this weekend makes an interesting case as to why the stocks, U.S. stocks in particular, are poised to continue to perform well over the long-term. First and foremost, predicting a short-term correction is impossible, and should be largely irrelevant to a long-term investor. The article points out that “the world’s problems might actually make U.S. markets more attractive.” In our view, it will ultimately come down to earnings, and so far, these are looking pretty good. According to FactSet, through this past Friday, roughly 2/3rd of the constituents of the S&P have reported fourth quarter earnings. Of these, 71% have reported earnings above analyst estimates, and 67% have reported revenues (sales) ahead of analyst estimates. And while both the number of ‘beats’ and the size of the ‘beat’ are below the five year average, the figures are supportive of current market levels, in particular when looking forward to what is estimated to be a solid 2020 for corporate earnings growth. Although there are more than 70 companies reporting earnings today, few are household names, meaning that their results are unlikely to sway the market as a whole. Wednesday’s reporting calendar is more interesting, as CVS Health (CVS), Cisco Systems (CSCO) and Applied Materials (AMAT) are amongst the 153 companies reporting that day.
Disclosures: This market commentary is written by the 1879 Advisors and represents the views of 1879 Advisors. This commentary is not investment advice and should not be used as a basis to make investment decisions. Please consult with your registered investment advisor before making any investment decisions.