Coronavirus continues to impact risk tone as death toll rises

Markets remain cautious as the death toll from the Coronavirus rises to over +900 people, surpassing that of SARS. With over 40,000 people estimated to be infected, the saga continues to touch all areas of the world. The market is still working to understand the full extent of potential fallout. Question marks remain around how to assess the large parts of China in lockdown and how various sectors around the globe will be affected.
We know the impact on tourism is significant enough to hurt luxury good companies and the leisure and travel sectors as the Chinese make up more than 10% of global tourism spending. Beyond this are the additional global growth impacts stemming from stress on supply chains, including auto parts, technology components, and even hockey sticks. Lower growth potential has impacted oil prices and there is no answer yet from OPEC regarding efforts to limit the potential supply/demand imbalance.
As a result, investors are trying to find asset classes where they can hideout. We have seen US Treasuries, Gold, and even Bitcoin prices benefit significantly in the face of these events. Equity markets seem to think US companies and consumers are still a good bet, but investors are weighing when this may reverse. For now, the solid January jobs data seems to be enough to continue the positive risk tone in equities.
Trump’s election year budget looks aggressive with a 3% growth forecast baked in, but the talk of more defense spending and potential tax cuts looks to be a positive impact for markets (at least for the time being). Earnings have thus far been broadly positive with a number of significant companies reporting this week.
Key data points this week will be CPI and Powell’s testimony in front of the House and Senate.
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YTD Returns as of EOD Friday 02/07/20
US Barclays Agg +1.86%, 2.05% yield, -13 bps excess returns
US Barclays Corp +2.34%, 2.58% yield, -29 bps excess returns
UST 10yr 1.58%,-33 bps
S&P 500 3,327.71, +3.00%
DJIA 29,102.51, +1.98%
OIL (WTI) $50.34, -17.76%
Gold 3,327.71, +3.55%
*Excess returns are returns achieved above and beyond the return of similar duration US Treasuries




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