MARKET UPDATE – 2 February 2020
As the WHO declares a global health emergency and countries around the world move to quarantine China, risk assets sold off with the S&P 500 returned -2.12% for the week (-0.16% for January after being up more than 3%). The US 10-year Yield dropped to 1.51% as the yield curve inverted once again. Commodities tied to the strength of the economy also declined while the US dollar rose. As long as the epidemic doesn’t deteriorate going into the second half of February forcing factory closures in China and impeding international trade, the global economic and markets outlook remains bullish, especially from 2H2020 onward.
Economy
- There is a fair chance that US Inflation will become a concern this year given that the US Economy is operating above potential, wage growth has been strong with labor markets tightening and the Fed is likely to maintain easy monetary policy if not cut rates further
- US Employment continues to be strong as the simple unemployment based SAHM Recession Indicator is at a low 0.03 (a reading of 0.5 or above implies a Recession is expected)
- US Consumption continues to be strong as well:
- Real Earning Power is at 15-year highsConsumption Growth has been between 2-3% year-over-year since 2016Personal Savings Rate is at multi-year highsFinancial Obligations as a percentage of Disposable Income remains very lowRead more...The US is also currently undergoing a strong Housing boom, though the possibility of a choke collar (i.e. prices rising so much that low interest rates become less important in making homes affordable) putting a halt to it is become more likelyAll in all, while there is a Manufacturing Recession in the US, there is clearly scarce evidence of it spreading to other sectors of the economy. This makes sense given that Manufacturing is only roughly 10% of the Economy while consumption is around 70%