Weekly Closing Numbers: Stock Under Pressure

Market Direction: BULLISH alert issued 10/24/2019

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The economy



The stock market fell for the second straight week, as the continued outbreak of the coronavirus dampened risk sentiment and raised concerns about growth prospects. The S&P 500 (-2.1%), Dow Jones Industrial Average (-2.5%), and Russell 2000 (-2.9%) dropped more than 2%, while the Nasdaq Composite (-1.8%) fared slightly better. The Nasdaq was the lone index to close the month higher (+2.0%).

Losses were made most prevalent in the S&P 500 energy (-5.7%), materials (-3.5%), and health care (-3.3%) sectors. The consumer discretionary (+0.1%) and utilities (+0.8%) sectors finished higher, but the 7% post-earnings gain in Amazon (AMZN) helped mask the weakness in the consumer discretionary space.

Although investors tried to dismiss the seriousness of the coronavirus amid several buy-the-dip efforts, the virus was ultimately impossible to ignore. Reports proliferated about the rising death toll in China, the reduced economic activity in the region, the first confirmed case of a person-to-person transmission of the virus in the U.S., and the growing cases around the world.

Separately, market participants have needed to digest an otherwise soft batch of economic data out of the eurozone, none of which has any impact from the coronoavirus in it, meaning the eurozone economy was sluggish on its own accord.

To wit, German retail sales declined 3.3% m/m in December; Q4 GDP in France was down 0.1% qtr/qtr; Q4 GDP in Italy was down 0.3% qtr/qtr; Q4 GDP for the eurozone was up just 0.1% qtr/qtr; and core CPI for the eurozone for January was up 1.1% yr/yr, versus 1.3% in December.

The 10-yr note yield is currently down one basis point to 1.55%, which leaves it down 37 basis points since the start of the year. The move in the Treasury market is reflective of some growth angst that has been creeping into the stock market, evidenced by the outperformance of the growth stocks and utility stocks and the underperformance of the energy, materials, financial, and consumer discretionary sectors.

Separately, the Fed left the target range for the fed funds rate unchanged at 1.50-1.75% and extended repurchase operations though at least April. The latter was perhaps the only surprising thing to come out of the policy meeting.

U.S. Treasuries ended the week with more gains amid the growth concerns. The 2-yr yield and the 10-yr yield dropped 16 basis points each to 1.32% and 1.52%, respectively. The U.S. Dollar Index declined 0.5% to 97.37. WTI crude fell 4.9%, or $2.63, to $51.58/bbl. 

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The market direction weekly closing numbers for the indexes this week compared to the initial BULLISH recommendation closing numbers:

Stock Market Closing Numbers
compared to Recommendation Numbers
	10/24/2019	1/31/2019	Difference
Dow Jones	26,805.50	28,256.03	1,450.53
Nasdaq	8,185.80	9,150.94	965.14
S&P 500	3,010.29	3,225.52	215.23

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