Global stock markets have opened down roughly 2-3% for Monday based on several weekend news stories. It is not uncommon for the stock market to experience a decline on a Monday after negative news headlines over the weekend. However, there have been very few declines for the markets in the current uptrend which started in October 2019.
Source: Saut Strategy, Andrew Adams, Monday Morning Comments, February 24, 2020
Stocks experienced a small decline at the end of January 2020 when fears of the Coronavirus became more pronounced. Once it appeared the growth of new cases had subsided, the markets raced to new all-time highs culminating last Wednesday with the S&P 500 at 3386. The index opened this morning at 3257, down roughly 3.8%. Recall that the index closed December 31, 2019 at 3230.
Our investment committee believes current market concerns center around two of the risks we are watching in 2020. The first risk is the unknown qualities of the Coronavirus. The stock market has reacted strongly when news about new cases and deaths is released, however the data for the virus has been sporadic at best. The negative news this morning centers on new cases announced in Italy, South Korea, Iran and Lebanon.
Source: Bespoke Investment Group, The Bespoke Report, 2/21/20
The second risk we have identified in 2020 is political risk surrounding the U.S. elections. While the Monday morning news headlines focus more on the virus, the weekend news headlines swirled around Bernie Sanders winning the Nevada caucus for the democrats. We believe that today’s market action is also considering the possibility that Sanders will win the democratic nomination.
While we are watching the markets closely for reaction to these uncertainties, we’ve also looked at prior events leading to large gaps down for the indexes on Monday mornings. Historically, when the markets open significantly lower, the rest of the day tends to gently rise toward the close of the markets in the afternoon. We have also noted that indexes tend to outperform for the 3- and 6-month timeframes after a large decline on a Monday.
Source: Bespoke Investment Group, Chart of the Day, 2/24/20
We are encouraged by the most recent earnings season for U.S. companies and stronger economic reports released in January for the U.S. economy. The market had been on a sustained uptrend since October and was due for a breather. Our investment committee sees low interest rates and low inflation as catalysts for U.S. companies going into 2020 and believe that earnings growth will remain positive. We do not see economic indicators pointing to recession at this time.
Our portfolio was positioned for heightened risk going into the new year and most of our investment holdings have performed well for the year. We will continue to evaluate the risks in the markets and economy and adjust where needed. Our process is focused on generating the risk-adjusted returns for our clients. If you would like to know more, please feel free to reach us via phone or email. Our office phone is (281)616-5935.
Engrave Wealth Partners Investment Committee
Bill Day, CFP®, CIMA (firstname.lastname@example.org)
Taylor Parker, CFP® (email@example.com)
Greg Parker (firstname.lastname@example.org)