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Capital Market Implications

The impact of the coronavirus on the US economy became evident last week as a number of recent economic releases were affected.  In particular, February’s flash PMI Output Index (covering both manufacturing and services) signaled a contraction in US economic activity for the first time since the global financial crisis.  The ISH Markit Composite Index slumped to 49.6 in February, down from 53.5 in the January.  Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing also ground to a halt due to a sharp decline in orders.  The significant deterioration in the index in a month suggests the disruption in supply chains as well as weakened demand for travel and tourism have already negatively impacted economic activity.

Last week, US stocks posted their worst week since January as fears mounted that the economic impact from the coronavirus (as it spread beyond China) would be greater than initially expected.  By Friday’s close, the S&P 500 Index had slumped -1.2% while the Dow Jones Industrial Average sank -1.4%.  Few sectors of the market were spared last week but technology suffered the most.  On Friday alone, the technology industry bore the brunt of the sell-off, with Microsoft and Apple accounting for more than 25% of the S&P 500 Index’s daily decline.  International markets contracted as well, with developed foreign markets off -1.2% while emerging markets plunged -2.0%.  Investors sought protection in bonds last week and, as the demand for bonds surged, yields declined.  As such, for the week overall, the Barclay’s US Aggregate Index, US corporate bonds and 10-year municipals bonds all gained more than 0.5%.  High yield bonds on the other hand did not participate in the rally and ended the week relatively unchanged.   

Weekly Macro Updates

Initial Jobless Claims (Feb 15) 210k est., 210k actual, 205k prior
Continuing Claims (Feb 8)  1717k est., 1726k actual, 1698k prior
Housing Starts MoM (Jan)  -11.2% est., -3.6% actual, 17.7% prior: R+
Building Permits MoM (Jan) 2.1% est., 9.2% actual, -3.7% prior: R+
PPI Final Demand YoY (Jan)  1.6% est., 2.1% actual, 1.3% prior
PPI Ex Food & Energy YoY (Jan)  1.3% est., 1.7% actual, 1.1% prior
Philadelphia Federal Reserve Business Outlook (Feb) 11.0 est., 36.7% actual, 17.0% prior
Leading Index (Jan) 0.4% est., 0.8% actual, -0.3% prior
Markit US Manufacturing PMI (Feb P) 51.5 est., 50.8 actual, 51.9 prior
Markit US Services PMI (Feb P)  53.4 est., 49.4 actual, 53.4 prior
Markit US Composite PMI (Feb P) 49.6 actual, 53.3 prior
Chicago Federal Reserve National Activity Index (Jan) -0.18% est., -0.25% actual, -0.35% prior
Dallas Federal Reserve Manufacturing Activity (Feb)  0.0 est., 1.2 actual, -0.2 prior


Strong or Improving
Inconclusive or lacking trend
Weak or declining
R+ Revised up
R- Revised down

Directional change based on general
long-term tends.