The Market Today

Markets Continue to Sink on Global Virus Fears

by Craig Dismuke, Dudley Carter

COVID-19 Update: The number of new COVID-19 cases rose another 1,582 since yesterday morning’s figures.  Growth in China continues to slow with just 327 new cases announced overnight.  However, the number of confirmed cases outside of mainland China continues to rise at an exponential rate. United Airlines announced this morning a reduction in routes to Japan, Singapore, and South Korea and an extension of its cessation of flights to China through the end of March.

Former Fed Governor Kevin Warsh guest-hosted CNBC’s Squawk Box this morning saying the coronavirus outbreak is the moment for global leaders to stand together and boost sentiment/activity via coordinated monetary and fiscal stimulus.  He discussed the possibility of an emergency, coordinated monetary response over the weekend noting that an “announcement should be made by Sunday.”  Inconsistent with Warsh’s recommendation, ECB President Lagarde said yesterday that they are monitoring the virus “very carefully” to determine whether it could turn into a “long-lasting shock,” but that “we are certainly not at that point yet.” Also yesterday, ECB Vice President Guindos said, “it’s important not to overreact.” “Overreactions in such events that generate uncertainty have sometimes a bigger impact than the event itself,” he noted, adding, “The only thing we need to be afraid of is unjustified alarm.”

Fed Fund Futures are now pricing in over a 100% chance of a 25 bps cut by the March 18 FOMC meeting, implicitly meaning some investors are now expecting a larger-than-25 bps cut.

For link to Coronavirus Chartbook, please click here.

For link to our Forecast Revision, please click here.



Strong Income Growth but Spending Soft: Personal income rose a stellar 0.6% MoM in January, reversing the trend of lower income gains that persisted in 2019.  On a year-over-year basis, personal income growth fell from 5.0% at the end of 2018 to 3.6% by December 2019.  The rate jumped to 4.0% YoY in the January data.  However, personal spending rose just 0.2%, below expectations and continuing a declining trend.  When adjusted for inflation, spending rose just 0.1% MoM and points to personal consumption falling from 1.7% in 4Q to 1.0% in 1Q.

PCE Inflation Remains Weaker-than-Expected: Adding to Fed concerns, PCE inflation was softer than expected in January.  Headline inflation rose just 0.1% bringing the year-over-year rate up from 1.5% to 1.7%.  Core PCE, the Fed’s preferred measure of inflation, also rose 0.1% MoM bringing the year-over-year rate up from 1.5% to 1.6%.  Core PCE was expected to rise to 1.7% YoY.

Goods Trade Deficit Declines on Slowing Trade Volume: The January advanced goods trade balance showed another surprising decline in the monthly trade deficit.  The deficit declined $4.3 billion on a 2.2% decline in imports and a 1.0% drop in exports.

Consumer Confidence: The University of Michigan will release its final February report on consumer confidence at 9:00 a.m. CT.  Confidence remains quite strong.

Fedspeak: St. Louis Fed Bank President Bullard (non-voter in 2020) is scheduled to discuss monetary policy at 8:15 a.m. this morning.


Virus Worries Weighed Heavily, Resulted in Additional Containment Measures: The U.S. stock rout made its sharpest downside move yet Thursday as headlines showed an increasing number of countries and companies implementing drastic containment measures as the virus’s spread outside of China continues to accelerate. Japan announced it was closing all schools across the country until the end of March and Saudi Arabia cancelled popular religious visits in the country. Among reports of company measures to protect employees, Microsoft and Facebook announced they were cancelling their involvement in a couple of major industry conferences. Cases in South Korea posted their biggest daily increase yet and the number of infected in Italy and Iran continued to grow. Several top officials in the Iranian government have been confirmed to have the virus. Additionally, nine new countries reported their first diagnosed case, taking the total number of countries outside of China with at least one case to 46.

Stocks Were Rocked in Worst Session Since 2011: U.S. futures had slumped sharply overnight as Asian markets weakened and European equities tumbled. By the close of European trading, the Stoxx 600 had fallen 3.8% in its biggest drop since Monday and second-largest since July 2016. After an up-and-down day of trading, 1,190 points were wiped off the Dow and the S&P 500 dropped 138 points, both representing 4.4% declines; it was the S&P 500’s worst day since 2011. Thursday was also technically significant in that each index closed below its 200-day moving average. The indices appeared to lose momentum in the afternoon following reports that California was monitoring 8,400 individuals for possible virus infections. The S&P 500 has dropped 12% from last Wednesday’s record close, the largest six-day decline since August 2011 and the second largest since 2008.

Long Yields Plumbed New All-Time Lows as Recession Fears Keep Growing: Gold was surprisingly stable but oil prices continued their downward spiral. U.S. WTI sank more than 5% to just over $46 per barrel, the lowest since December 2018, deepening a dive into a bear market down 26.7% since an early-January peak. Treasury yields also came into U.S. trading sharply lower with longer maturities resetting Wednesday’s all-time intraday record lows early in the session. While yields closed just above those lows, Thursday’s decline extended the recent rapid decline for a sixth session; the 2-year yield hasn’t dropped in more than six consecutive sessions since early 2016. The 2-year yield fell 10.3 bps to 1.06%, the lowest since November 2016, and is down 36 bps since last Wednesday. Fed funds futures continued to reprice aggressively, moving the probability of a March rate cut to 85% and pricing in 36 bps of easing by the April meeting. The 10-year yield fell 7.6 bps to 1.26%, a new record low, and has fallen 30 bps since last Wednesday.


Case Counts Outside of China Continue to Climb: This week’s market fear remains in full force on Friday as equities around the globe continue to sell-off in what could be the worst week for stocks globally since 2008. The relentless risk-off tone has continued to push sovereign bond yields lower and longer Treasury yields to new all-time record low levels. Virus case counts continued to swell in South Korea and Iran and first infections were found in Nigeria, New Zealand, Lithuania, and Mexico. Germany quarantined hundreds, Switzerland banned gatherings of more than 1,000 people, and Geneva canceled its renowned International Motor Show. Ahead of the weekend break, investors’, with last weekend’s explosion of cases outside of China fresh on their minds, are guarding against another bout of unforeseen developments over the next two days.

Markets Fear Fever Spike As Uncertainty Remains High Ahead of the Weekend: With growing fears COVID-19 could become a prolonged pandemic, stocks sold off more than 3% across both Asia and Europe and U.S. futures posted declines, albeit more modest losses of 0.5% around 7 a.m. CT. MSCI Asia Pacific Index has dropped 7.7% in seven days, the worst stretch since January 2016. Europe’s Stoxx 600 is down more than 12% over that period, its worst run since August 2011. Oil prices continue to push lower, down another 2% on Friday with WTI below $46 per barrel. Longer U.S. bond yields continue to break lower to historic levels with the 10-year yield down 4.5 bps earlier to 1.22%. The curve has steepened, however, as the 2-year yield dropped an even-larger 6.9 bps to 0.99%, below 1.00% for the first time since November 2016. Markets increasingly expect the Fed will be forced into cutting rates, with futures now pricing in a greater-than-25-bp cut by March and nearly 90 bps of easing by the end of the year.


Evans Sticks to Fed’s Monitoring Mantra on COVID-19: Chicago Fed President Evans does not vote on policy this year, but growing market expectations for multiple rate cuts in response to ever-increasing virus worries has sharpened the focus on any official’s comments about COVID-19. Evans prepared remarks were focused on the weak inflation that has persisted during the current cycle that, in his opinion, “may require more periods of above-target inflation than experienced in the past.” On the virus, he said they are monitoring the situation but noted he believes “it would be premature, until we have more data…to think about monetary policy action.” He went on to say, “After several months, and having a better idea of how this is going to transpire through this year, I think we will be better positioned to think about what the implications might be for monetary policy.”

Pending Home Sales Surge Back More than Expected from December Chill: Pending home sales rebounded more sharply than expected to start the year and December’s disappointing drop was not quite as severe as previously estimated. New pending sales rose 5.2% in January, easily outpacing the expected 3.0% gain, and December’s initially-estimated 4.9% drop was revised to a slightly-smaller 4.3% decline. To underline the unusually volatile nature of the prior two months’ results, December’s drop and January’s surge were the sharpest swings since 2010. Sales slowed again in the West but rose across the other three regions, led by an 8.7% snapback in the South, the biggest gain since the housing crisis. The housing data remain broadly solid against a backdrop of warmer winter weather and low mortgage rates.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2022
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120