Stepping back. U.S. stocks are lower this morning after the S&P 500 Index capped last week with three straight record highs. Reports of a deadly virus outbreak in China have weighed on global markets, with the Shanghai Composite Index poised for its biggest slide since November. Investors may also be taking a step back after an impressive rally over the past few months. The S&P 500 Index has rallied 15% from the October 2019 lows, and the index appears overbought in the near-term.
A stuck 10-year yield. There hasn’t been much to report on the U.S. fixed income front lately. The 10-year U.S. Treasury yield climbed less than one basis point (0.01%) last week as the benchmark remained stuck in a range it’s struggled with for months now. Yields’ lack of direction could be due to the tug-of-war between improving fundamentals (a positive for yields) and Treasuries’ attractive valuations relative to other sovereign debt (a negative for yields).
Mixed news from corporate America. With just 45 S&P 500 companies having reported, fourth quarter earnings are tracking to a 2.4% year-over-year decline on a 2.6% increase in revenue. Even if upside turns earnings growth positive, the story this earnings season will still be about 2020. On that front, the news so far is encouraging, as S&P 500 company earnings estimates for 2020 have edged higher since year-end.
The week ahead. This holiday-shortened week includes December’s existing home sales on Wednesday, the Conference Board’s Leading Economic Index on Thursday, and Markit’s preliminary January Purchasing Managers’ Indexes (PMI) for manufacturing and services on Friday. About 58 S&P 500 companies are also scheduled to report results this week. Internationally, the Bank of Japan will announce an interest rate decision on Monday, followed by a German business sentiment report on Tuesday, Japan’s trade data on Wednesday, the European Central Bank’s interest rate decision on Thursday, and Markit’s global manufacturing PMI data on Friday.
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