Stocks rebound. U.S. stocks are rebounding this morning as tensions simmer around a dangerous outbreak of the coronavirus. China implemented travel restrictions on Hong Kong to contain the virus after extending its Lunar New Year holiday to February 9 earlier this week. Cases of the virus continue to increase around the globe, but China’s actions seem to have satisfied investors for now.
Coronavirus fears end calm. Fears about the coronavirus outbreak broke a period of calm for the S&P 500 Index, which has dropped 2.6% from its latest record high. On Monday, the benchmark slid 1.6%, its first move of 1% in either direction since early October. We know from history these calm periods don’t last very long and that we were due for some volatility, so it was only a matter of time before stocks sold off. While we don’t want to minimize human losses, history tells us the economic and market impact of a catalyst like this could be limited. We’ll explain more today on the LPL Research blog.
Yields drop. Treasury yields have also taken a hit amid the drop in risk appetite. The 10-year U.S. Treasury yield dropped 14 basis points (0.14%) last week, its biggest weekly drop since October 2019. The benchmark yield now sits around 1.6%, fewer than 15 basis points (0.15%) away from its 2019 low of 1.46%. The yield curve has yet to invert (long-term yields falling below short-term yields), but the spread between the 3-month and 10-year yields is only five basis points (0.05%).
Durable goods jump. Durable goods orders increased 2.4% in December, the biggest monthly rise since August 2018, according to preliminary data. However, November’s durable goods drop was revised down to -3.1%, tainting an otherwise strong headline number. Orders for nondefense capital goods (excluding aircraft), a measure we watch to gauge capital expenditures, fell 0.9% month over month. Over the past few years, capital goods orders have eased in the last two months of the year, so there could be seasonal factors at play. January’s data will be telling, though, as many companies tend to launch new projects at the start of calendar years.
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