Investors Ward Off Coronavirus - Adviser Investments

Investors Ward Off Coronavirus

January 27, 2020

With a week still to go, January has already delivered a year’s worth of worries, from Iran to the impeachment process, to Brexit and a new, deadly coronavirus outbreak in China.

Despite the scary headlines, U.S. stocks have gained ground and are only fractionally below the all-time highs set at mid-month. For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 2.3% and 3.0%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is flat at 0.0%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 2.19% from 2.31% at 2019’s end. On a total return basis, the U.S. bond market has gained 1.0% for the year.

You may be surprised by those returns, but they demonstrate why we believe that investment decisions should not be dictated by emotions. We strongly encourage you to stay diversified and focused on your investment goals, not the day-to-day headlines.

Contagion Fears Yet to Go Viral

After being the focus of a trade dispute with the U.S., China has returned to the headlines for another reason—as ground zero for the coronavirus, which has claimed 26 victims and infected nearly 900 people at last report. The virus originated in the central Chinese city of Wuhan—which counts 11 million residents and has been quarantined and cordoned off by military force. China’s unprecedented lockdown of Wuhan and two other cities, with restrictions on five others thus far, suggests to us that the magnitude of the virus’ spread and impact is greater than being reported (as is often the case with negative news from China).

If the current outbreak worsens, the question will be how far the contagion and resulting humanitarian crisis might grow. The farther the virus spreads, the greater the potential disruption to day-to-day life in China and beyond, and thus for traders to react with fear. Like all other known risks, we will be watching this closely.

While we are obviously concerned by the human toll, from an investment standpoint, the market impact so far has been restricted primarily to Asian bourses. And so far, the reaction has been modest—Chinese stocks are only down 3% or so this month.

Early Earnings Trends

It’s still early, but familiar trends have defined the earnings reports from the nearly 75 companies that have announced fourth-quarter results so far. Companies catering to U.S. consumers are faring well, while firms dependent on U.S. manufacturing and global business remain hamstrung by U.S.-China trade concerns. The impact of the recently signed “phase one” truce between the two super-economies could spur greater business spending, though any such boost will not factor into fourth-quarter results.

Thus far, almost 70% of earnings reports have delivered results that exceeded admittedly low expectations. But in this market, doing “better” is more important than doing “good.”

Economy Continues Growing

Recent U.S. economic data has been decidedly mixed. In past weeks, we showed you how the larger service economy is growing even as the industrial or manufacturing segment has been slowing. You can also see this mixed data in the Conference Board’s Leading Economic Index (LEI)—a measure of 10 different factors that tend to drive the broader economy. The most recent release showed a worsening trend for three of those 10 factors and a stable track for five.

Sources: Charles Schwab, Bloomberg, The Conference Board.

Our view, and we’ve been saying it for years: We have a slow-growth, not no-growth economy. But if the alternative is a recession, we’ll take slow and steady any time.

Webinar Replay—2020 Conflicts: Impeachment, Tariffs & Global Dysfunction

On Thursday, in our live, interactive quarterly webinar (we’ve posted a replay on our website, which you can view at your convenience by clicking here), we shared our views on the markets and expectations for the months ahead. Account Manager Diana Linn moderated a wide-ranging discussion with members of our investment team.

Chairman Dan Wiener and Director of Research Jeff DeMaso offered a broad overview of the current state of the investment markets and looked to what recent events might mean for your portfolios. Among other topics, Dan recapped 2019, discussed investing during times of crisis and looked at the longevity of the economy’s slow-growth, not no-growth course. Jeff analyzed the latest earnings and interest-rate trends while busting a few investment myths on the way to outlining his 2020 expectations.

In the Q&A segment, our team weighed in on a variety of client questions. Chief Investment Officer Jim Lowell, Vice President Steve Johnson and Equity Research Analyst Kate Austin fielded queries on the implications of impeachment, the value of bonds in a low-interest-rate environment, the likelihood of recession and where to invest during times of upheaval.

Click here to watch now!

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 Financial Planning Focus:

Control Your Expenses in 2020

To be an investor, you must also be a saver. And saving requires spending less than you earn. So, the first step to becoming a successful long-term investor is understanding and controlling your spending habits. It’s easier than you think, and here are a couple of tips you can literally take to the bank.

List your recurring monthly bills—think mortgage, cable, cell phone, insurance payments, utilities, gym memberships and transportation.

Track your other daily expenses over the next month to get a feel for where the rest of your money is going. Groceries, shopping, gas, eating out, entertainment… you get the picture.

If you find that you’re spending less than you earn, you might still discover ways to spend even less. If you are spending more than you earn, we can help you prioritize and strategize ways to tilt the spending-versus-earning seesaw in your favor. We’re always available to assist with managing your spending, saving and then finally investing for the future.

Make it easy on yourself: Setting up your savings so that they flow automatically from your paycheck into retirement or long-term investment accounts is a great shortcut.

Set an investment goal for your savings. We recommend that investors who are not in retirement put at least 10% of their income (including any employer match) toward their retirement.

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Looking Ahead

Next week’s earnings and economic reports could offset headline fears. In addition to a flood of fourth-quarter earnings and outlooks from corporate leaders, we’ll get home-related data (prices, sales and pending sales); a first look at Q4 economic growth; durable goods orders; consumer gauges including confidence, sentiment, income, spending and savings; inflation measures; and a two-day Federal Reserve meeting culminating in Chair Jerome Powell’s Wednesday afternoon press conference.

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, January 24, 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.

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