U.S. stocks rose for the second straight week, setting more new record highs along way despite the threat of global economic disruption from the coronavirus outbreak. Encouraging commentary about the economic outlook from Federal Reserve (Fed) Chairman Jerome Powell and another generally well-received batch of earnings results helped offset news that reported coronavirus cases had increased.
All four U.S. indexes we track posted solid gains during the week, led by the Nasdaq Composite and small cap Russell 2000 Index, which gained 2.2% and 1.9% respectively. The largest growth sectors—consumer discretionary and technology—both outperformed. The interest-rate sensitive real estate and utilities sectors outperformed with five straight daily gains despite little change in interest rates.
This week’s economic calendar featured stable consumer inflation and mixed retail sales for January. The core consumer price index (CPI), excluding food and energy, rose 2.3% year over year, in line with the recent trends. Retail sales rose 0.3% in January, but “core” sales, excluding autos, gas, building materials, and food services, were unchanged.
Emerging market stocks gained 1.3% through Thursday’s close based on the MSCI Emerging Markets Index, reflecting continued confidence that the coronavirus outbreak would be contained soon. Gains were driven by China, Korea, and Taiwan, based on MSCI country indexes. Weakness in Japan weighed on developed-market stocks, which produced only a modest gain despite strength in the United Kingdom (UK). German stocks rose despite flat fourth quarter 2019 GDP.
Fixed income prices were mixed during the week as markets digested both positive and negative news on the coronavirus outbreak and supportive commentary from Fed Chair Powell. The 10-year U.S. Treasury yield ended the week flat at 1.59% as the yield curve maintained roughly the same shape. Highyield corporate bonds posted the best return through Thursday, finishing up 0.46%. Otherwise, there was little dispersion in returns, with all bond sectors we track posting returns within a range of plus or minus 0.2%.
Gold, copper, and oil rose during the week, with oil finally breaking a five-week losing streak, its longest run of negative returns since November 2018. Copper and oil have held above their respective 2019 lows to date. The U.S. dollar posted its fifth weekly gain in the past six weeks, helped by strong performance against the euro, which is now at its lowest rate versus the dollar since April 2017.
Next week’s U.S. economic calendar will bring key data points on inflation and housing, including housing starts, building permits, and producer prices, on Wednesday. Also on Wednesday, the core producer price index (PPI), excluding food and energy, is expected to rise 1.4% year over year, per Bloomberg consensus. The Conference Board’s Leading Economic Index for January, which will be released on Thursday, is expected to increase 0.4% from December’s level.
Earnings season continues next week with 53 S&P 500 companies slated to report quarterly results.
Internationally, Eurozone business confidence from the ZEW Survey, preliminary purchasing managers’ surveys from Markit, and consumer inflation are on the economic calendar. In Japan, data on trade, machine orders, and consumer inflation will be released. In the UK, inflation and retail sales are on the docket. And in China, data highlights include loan growth, money supply, and foreign investment.
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All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Sector data is represented by S&P 500 GICS sub-indexes.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies.
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