Growth Hopes Trump Contagion Fears - Adviser Investments

Growth Hopes Trump Contagion Fears

February 10, 2020

Please note: This update was prepared on Friday, February 7, 2020, prior to the market’s close.

U.S. stock market indexes hit record highs yesterday as the Chinese government reduced tariffs on $75 billion of U.S. imports, job growth persisted and fourth-quarter earnings reports demonstrated modest growth. Thus far, 71% of S&P 500 companies that reported have beaten (admittedly meager) earnings expectations; the market continues to show that, as far as earnings are concerned, doing “better” is good enough.

Amid the gains, the headline concerns of a week ago seemed to be less worrisome for Wall Street. President Trump’s acquittal officially resolved one lingering news item. The U.K. formally split with Europe. And the coronavirus, while still a very real humanitarian disaster, appears to be less of a concern for traders than it has been.

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 3.1% and 3.7%, respectively. The MSCI EAFE index, a measure of developed international stock markets, remains nearly flat, with a 0.1% gain. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has slid to 2.11% from 2.31% at 2019’s end. On a total return basis, the U.S. bond market has gained 1.5% for the year.

Promising Signs of Coronavirus Containment 

It’s likely that we’ll be hearing a lot more about the coronavirus’ human, economic and market tolls in the months ahead. But so far this week, absent of any hard, verifiable count of the dead and infected in China and elsewhere around the world, global markets—including those of China and Southeast Asia—have been in relief rally mode.

A new research report from S&P Global outlined expectations for the emergency to slow by April and transmissions to cease by May 2020, with any impact on economic growth stabilizing in the back half of the year and recovering as 2021 begins. As with any forecasts of future events, there’s no absolute certainty (especially given the spotty reporting on the scope of the outbreak in China), but it’s promising to see scenarios for the size and timing of the outbreak’s peak that show an end in sight.

U.S. Fundamental Strengths Persist

With the headline noise receding, the fundamentals are supporting market gains. The job market entered 2020 firing on all cylinders, with the ADP private sector jobs report posting the largest monthly gain in nearly five years in January. The official jobs report (from the Bureau of Labor Statistics) showed similar strength, with employers adding 225,000 jobs last month while paying employees 3.1% more than they did a year ago. Both reports are impressive given that unemployment sits at 3.6%.

The labor market’s strength and the consumers it provides with paychecks have been potent enough to prop up temporary soft spots elsewhere. Take manufacturing, for instance. This sector of the economy was sinking in 2019’s second half before stabilizing in January. We saw a similar pattern in 2012 and 2015—a momentary manufacturing contraction while the service sector continued to grow and shoulder the load for the economy as a whole until industrial production recovered.

Note: Chart displays monthly ISM manufacturing and non-manufacturing (“Service”) gauges from December 1997 through January 2020.
Source: Institute for Supply Management.

A Gallup poll released this week showed Americans are as confident as ever before about their personal finances. Nearly six in every 10 respondents said in January that they were better off financially than they were a year ago. That number is up from five in 10 in January 2019. And they’re optimistic about what lies ahead; 74% expect their finances to improve in the coming year.

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Financial Planning Focus:

Is Your Umbrella Open?

When unexpected storm clouds roll in to your life, you don’t want to be caught without an umbrella. Insurance plays a critical role in protecting you from getting drenched. A robust wealth plan requires having more than the bare minimum coverage. That’s why we recommend discussing how to extend insurance beyond traditional packages in any financial planning engagement with clients.

A personal umbrella insurance policy, one that kicks in after the liability limits of your auto and homeowners policies are exhausted, can protect against potentially devastating liability claims. How does it work? Let’s say you’re at fault in a car accident and the cost of injuries to others is $600,000. Your auto insurance policy has a bodily injury limit that tops out at $300,000—absent umbrella coverage, you’re on the hook for the next $300,000. With a sufficient umbrella policy, you would have insurance coverage for those additional damages.

Your wealth management team can help you determine how big your umbrella policy should be. Generally, to protect against any potential litigation, we recommend covering your liquid net worth.

Are you unsure of your net worth? Start by listing your assets: Bank accounts, investments, home equity and the like. Then add up liabilities: Mortgage, car and student loans, credit card balances. Subtract those liabilities from your assets and that’s your net worth.

For more from our team on insurance of all types, listen to The Adviser You Can Talk To Podcast episode that covers common insurance needs for people of all ages.

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Looking Ahead

Next week brings more focus on economic fundamentals, with fresh reads on small business confidence, job openings, household debt, retail sales, inflation and consumer sentiment.

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 7, 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.

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