January Market Overview

Business person working at desk looking at charts

Equity markets kicked off the new decade with strength in the first few weeks but finished the month broadly lower, as coronavirus concerns spread through the market nearly as quickly as the virus itself. While the S&P 500 ended the month roughly flat, many of the indices we track declined several percentage points. Meanwhile, returns across all major Fixed Income Indices were positive and gold performed strongly as investors sought safe havens.

The big story in the first half of the month was the long-awaited phase-one trade deal between the U.S. and China, which was signed on January 15th. We view the agreement positively for many reasons, though we note that several issues remain unresolved and are expected to be addressed in a phase-two deal.

Favorable aspects of the current deal include a significant commitment from China to bolster imports from the U.S. by $200B, with a meaningful increase in purchases of manufactured goods, services, and agricultural and energy products. Further, the agreement mandates that China impose criminal penalties on the theft of U.S. intellectual property by the Chinese. We believe the agreement will be beneficial, as it has deescalated U.S.-China tensions, giving corporations greater confidence to resume investments that were put on hold due to the uncertainty.

Some of the major issues to be addressed in a phase-two agreement include ongoing concerns about China’s state-backed hacking of American companies and government institutions, as well as the substantial subsidies the Chinese government doles out to Chinese companies that give them an added cost advantage over international competitors.

Shortly following the signing of the trade deal, the coronavirus began making headlines and rapidly roiled the markets as investors began to contemplate the economic damage it will cause. While still too early to determine how impactful the virus will be, it is widely believed that this will measurably dent global growth this year—as factories have halted production, airlines have canceled flights, and establishments, from casinos to Starbucks, have closed.

While volatility increased in the latter part of the month, context is important. Investors enjoyed a remarkable year in 2019—so the market action over the past month is nothing more than a modest blip. We also endeavor to remind clients that our portfolios are designed to effectively balance risk and return over the long-term. While there are sure to be global scares that result in market volatility from time to time, we will remain steadfast in our process and philosophy. 

The monthly Market Overview is written by two members of MACRO’s Investment Committee: Mark Cortazzo, CFP®, CIMA®, and Christopher Moffett, CFA.

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