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Market Commentary for the week ending February 8th, 2020

Summary

  • U.S. stocks hit record highs before retreating at the end of the week
  • The economy added more jobs than expected in January and wages continued to rise
  • Auto maker Ford’s stock falls on disappointing earnings while Tesla’s skyrockets

 

Market Performance Summary

Market indexes week ending February 7, 2020

Source: www.YCharts.com

Notable Market Headlines

Following a rather tough last week of January, the first week of February was a complete reversal with stocks around the world surging higher as fears of the coronavirus faded. The general consensus seems to be that the economic impact of the virus will be minimal worldwide generally contained to a few regions in China where the virus originated and spread.

At the close of the week U.S. large stocks, as measured by the S&P 500, were higher by +3.3%. The Dow Jones Industrials lagged slightly posted a +3.0% gain while the NASDAQ Composite outperformed rising by +4.0% for the week. All three indexes completely wiped out their losses from the prior week and more hitting all time record highs on Thursday before retreating someone on the last day of the week. Year-to-date large stocks are higher by +3.2%.

Small U.S. stocks performed well for the week but did lag behind large stocks gained +2.7%. Year-to-date small stocks remain in negative territory down -0.5%.

An interesting and continued theme in the market has been the outperformed of growth stocks over more conservative value stocks. Some of the biggest growth stocks include Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) while some of the biggest value stocks are Berkshire Hathaway (BRK.B), J.P. Morgan Chase (JPM), and Johnson & Johnson (JNJ).

Year-to-date growth stocks have surged higher by +6.1% while value stocks have hardly budged up just +0.3%. This has been the case since the start of this long-running bull market as illustrated in the accompany graph. This outperformance of growth stocks over value is making investors question the long-term viability of value stocks. There can be no certain answer to this but history would suggest that performance rotates back and forth between growth and value stocks over time.

Growth vs value stocks  compounded annual returns since February 2009

Source: Growth Stocks: Russell 1000 Growth; Value Stocks: Russell 1000 Value

International stocks all moved higher as well with developed country stocks gaining +2.2% for the week and emerging markets higher by +3.0%. Among the biggest movers was China’s market rebounding from a sharp decline the week before higher by +3.8% this week. Year-to-date Chinese stocks are still lower by -5.4% as is the save for overall developed and emerging markets down -0.7% and -3.4% respectively.

The performance of alternative assets was mixed with real estate stocks higher by +1.5% while both gold and commodities fell -1.0% and -0.8% respectively. Even after gold’s decline this week it is still the best performing asset class we follow year-to-date higher by +3.4%.

Bond prices eased as investors embraced riskier assets this week and sold those that tend to be more conservative. Bond prices overall were down by -0.2% but are still higher by a strong +1.8% in 2020.

Stock Highlights

Tesla (TSLA), the manufacturer of electric cars and more, has seen its stock surge since the fall of 2019. This week the stock hit an all-time closing high of $887 after trading below $250 just 4 months ago. The stock did retreat later in the week to close at $748 still higher by nearly $100 for the week. The company has been hitting its delivery goals and turning a profit which has created a lot of optimism among the bulls for this stock.

Tesla (TSLA) stock price

Source: www.YahooFinance.com

Biogen (BIIB), a $14 billion in revenue biotech company, received a ruling from the U.S. Patent Office board saying its patent on its multiple sclerosis drug was valid. This stems from a claim from generic-drug maker Mylan (MYL) that the active ingredient in Biogen’s drug had been known for years but Mylan failed to prove its case. Biogen’s shares surged on the news rising +26.0% for the week making it the best performer among the S&P 500 stocks.

Twitter (TWTR), a popular social media platform, reported quarterly results showing earning falling short of expectations but user growth topped forecasts with 152 million average daily users. Investors were pleased with the results driving the stock higher by +14.0% for the week.

Ford Motor (F), with about 14.3% of the automobile market share in the U.S., reported adjusted earnings, after excluding a one-time charge to fund its pension plan, that were below analyst expectations impacted by higher labor and warranty costs. The company also provided earnings guidance for 2020 that disappointed investors all leaving the company’s stock lower by -8.1% for the week and -12.8% year-to-date.

Cardinal Health (CAH), the third largest wholesaler of pharmaceuticals and medical products, reported quarterly earnings of $1.52 per share far surpassing Wall Street estimates on revenue of $39.74 billion. Although the stock jumped +13.7% for the week it remains off its 2015 all-time high by about -33%.

Economic Indicator - Reported

The January employment report showed the economy adding 225,000 new jobs as compared to the prior month’s 147,000 and economists’ forecast of 165,000. A big part of the story is an increase in the participation rate, or the number of people seeking jobs, which has arguably helped the jobs numbers continue strong while also keeping wage increases moderate.

The ISM Manufacturing Index came in at 50.9% in January versus 47.8% in the prior month and better than economists’ estimate of 48.5%. A reading above 50% suggests growth with January being the first month showing growth in 6 months. The second half of 2019 was impacted by the trade war with China but there have been signs of a rebound.

Economic Indicators – Upcoming

The following economic data are expected in the coming week:

  • Retail Sales
  • Consumer Price Index (CPI)
  • Industrial Production

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