Please note: This update was prepared on Friday, February 21, 2020, prior to the market’s close.
The coronavirus is almost certainly negatively impacting companies’ earnings this quarter, but global markets have been reasonably resilient, with the S&P 500 index, the Nasdaq Composite and two European indices, the Stoxx Europe 600 index and Germany’s Dax, all reaching record highs this week. The counterpoint: Investors continue to crowd into long-term U.S. Treasurys—a bid on safety. In fact, the yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. on the 30-year Treasury recorded a new low of 1.89% Friday morning.
For the year through Thursday, the Dow and the broader S&P 500 index have returned 2.7% and 4.7%, respectively. The MSCI EAFE index, a measure of developed international stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets, is down 1.5%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index has declined to 2.02% from 2.08% last week, and from 2.31% at 2019’s end. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market has gained 2.2% for the year.
Investors May Be Underestimating Coronavirus RisksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.
Right now, our research and analysis suggest that the slow-growth-not-no-growth trend will prevail—and this week’s housing-related data, manufacturing read and Fed minutes concur. However, the human, economic, earnings and market toll of the coronavirus are far from known, let alone done.
The latest reports indicate the outbreak has spread to two dozen countries, infected over 75,000 people and resulted in at least 2,000 deaths. Fully predicting how one evolving dynamic (the coronavirus) will impact a complex system (the global economy) is impossible, though we know that it has brought a great deal of suffering, fear and disruption to the daily lives of millions—including some of you receiving this update.
The consensus view is that the coronavirus and its impact on the economy will be short-lived. But businesses are being affected. To take just one example, iPhone suppliers are reportedly operating at 30% to 50% of capacity. Still, the catchword among corporate executives is “transitory.”
If the optimism relating to the coronavirus is overdone, then any fresh news of the virus’ further spread could burst traders’ bubbles, triggering selling beyond the facts.
What we do feel certain of is that the economic data and earnings results reported by companies in the months ahead will be very noisy. At Adviser Investments, we know and never ignore the fact that investing always comes with riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. strings attached. The key to long-term success is to listen to the market’s signals and be ready to react—and that’s precisely what our tactical portfolios are designed to do.
Retail Sales Provide a Silver Lining
With the coronavirus causing so much media noise, it’s easy to get confused by the data we’re getting about the state of the economy.
For example, you may have seen some headlines this week saying that January’s retail sales were strong in one area and weak in another. The bottom line is that despite coming off a robust holiday spending season, the consumer is still consuming. While year-over-year sales slowed from December’s big rise, it was still a darned good month—the best January since 2017—helped in part by warm weather, which always brings out the buyers.
Financial Planning Focus
Understanding Your Credit Score
Like a blood pressure check for your health, your credit score provides a helpful shorthand for your financial well-being. Your creditworthiness directly impacts your pocketbook, affecting the interest rates you’ll be offered on loans, your insurance premiums, even your job prospects—employers often check a candidate’s credit history when hiring. Many people only learn how they score when applying for a loan or credit card. But regularly reviewing your credit score and credit reports can uncover trouble spots or suspicious activity before they get out of control.
So, credit scores and credit reports: What’s the difference?
A credit report is an in-depth look at your credit history, showing the loans and credit lines you’ve taken out over time, as well as your payment history and current level of available credit. It can also include any public records that shed light on your financial health (such as bankruptcy declarations, foreclosures or debt judgments).
A credit score is a single number that serves as a shorthand summary of all the information contained in your credit report, which lenders and others can use to quickly evaluate you as a potential borrower. Each of the three major credit reporting agencies—Equifax, Experian and TransUnion—has its own credit score, using information from a variety of sources. Many lenders also use credit scores provided by the Fair Isaac Corporation, or FICO.
You can review your credit report for free once every 12 months by requesting a copy at annualcreditreport.com. Doing so is not considered a “hard inquiry” on your credit and will not negatively impact your credit score. Reviewing your credit history gives you the opportunity to correct any mistakes (which will improve your score) and is an effective way to guard against identity theft. (For more tips on how to protect your information and your investments, please read our special report on cybersecurity.)
While the credit rating agencies often charge a fee to view your score, many other services, such as Mint or Credit Karma or even your credit card, now provide free credit score features. You shouldn’t have to pay to review your credit score.
And it may be worth checking your score in the next few months, as you may see some changes. FICO, the most widely used credit score provider among lenders, recently announced it will be tweaking the formula it uses to calculate credit scores. (The formula usually gets a refresh every few years or so; it was last updated in 2014.)
The biggest change with FICO’s new model is that it will take a longer view of your credit usage, evaluating the 24-month trend rather than a monthly snapshot. Borrowers who pay off their credit balance on a consistent basis should see an improvement in their scores. Personal loans will also be treated separately moving forward. If you’ve consolidated credit card debt with a personal loan but still have high monthly balances on your cards, your score may be negatively affected.
Next week, we’ll get a bevy of reports on the state of the American consumer, with data on consumer confidence, sentiment, income, spending and savings. We’ll also see inflation gauges, a revision to fourth quarter GDP, new home sales and durable goods.
As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future.
Please note: This update was prepared on Friday, February 21, 2020, prior to the market’s close.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.