January 2020 Market Review

-Darren Leavitt, CFA

The markets started January with nice gains but gave back some of those gains later in the month on concerns related to the spread of the novel coronavirus and its effect on the global economy. During the month, the US and China signed a “Phase One” trade accord and started negotiations on the next phase
of a broader trade agreement. At the end of January, the UK exited the European Union and both sides have now begun work on new trade agreements. Tensions between the US and Iran increased in January, but a further escalation, was for the time being, avoided. Central bank meetings during the month
yielded very little in new policy which continues to be accommodative. The easy money comes as global economic data appears to be on better footing. For the month the S&P 500 lost 0.16%, the Dow lost 0.99%, the NASDAQ bucked the trend with a gain of 1.99%, and the small-cap Russell 2000 lost 3.26%.

Developed international equities lost 2.82% and emerging market equities lost 6.15%. Safe-haven assets were in favor for the month with US Treasuries outperforming. The 2-year note yield decreased by 25 basis points to close at 1.32% while the 10-year bond yield decreased by 40 basis points to close at 1.52%. Bond prices increase as their yields decrease. Gold was also well bid and gained ~$64 or 4.2% on the month to close at $1587.70 an Oz. The global demand for oil fell over the month. For the month, WTI crude sold off 16.1% or $9.90 a barrel to close at $51.58 a barrel.

Fears of the novel strain of coronavirus hindered markets in the second half of January. The virus which originated within China has now spread across the globe and should be considered a threat that has numerous unknown variables attached to it. The outbreak is still in its infancy, and the fear of contracting the virus, coupled with aggressive policy measures taken by the Chinese and other countries, will undoubtedly have an impact on global economies.

“Phase One” of US and Chinese trade negotiations was signed in the middle of January. A reduction of tariffs along with increased purchase agreements of US agricultural products, access to Chinese financial markets, and an understating between the two nations on currency policy were the major highlights of the initial deal. The next steps in a broader deal are on the way and will include further Intellectual property protection and procedures to enforce any breach of these policies. Brexit, the departure of the UK from the European Union, took place on January 31st. The saga has been ongoing for years now
but will continue over the next year as both sides negotiate a new arrangement. The UK will now also be in negotiations with other countries to forge unilateral trade accords.

A targeted attack in early January by the US killed an Iranian General. The attack came after numerous Iranian attacks on various US and US-allied assets. The attack prompted a subsequent non-lethal strike on US forces in Iraq by Iran, but the attack was seen ironically as a de-escalation of the situation. The US imposed more sanctions on the country which has also had to contend with widespread unrest following the mistaken attack on a civilian airliner and the perceived cover-up attempts by the Iranian government.

Central banks across the globe continue to be accommodative in support economic growth. The accommodation led to better than expected economic data in January, with both global manufacturing and global services looking better than prior data sets. Employment data in the US and consumer confidence
continued to be healthy. The US Federal Reserve left its policy rate range unchanged at 1.5%-1.75%. The European Central bank also left its current policy rate unchanged and continued with its quantitative easing program.

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