Market Update: Tues, Feb 4, 2020 | LPL Financial Research

LPL Research on CNBC. LPL Financial Senior Market Strategist Ryan Detrick was on CNBC’s Squawk Box yesterday with Becky Quick. You can watch the full interview here.

S&P 500 futures point to strong open. Following a dramatic decline Monday, China’s major indexes rebounded overnight, acting as a catalyst for a global rally. The MSCI Asia Pacific rose 1.1%, with the Euro Stoxx 600 posting similar gains at midday, and S&P 500 Index futures advancing in line with global stocks. The driver of the shift in mood isn’t entirely clear, although the potential for Chinese fiscal stimulus to help navigate the economic impact of the coronavirus and calls for the United States to lift some tariffs may be playing a role.

Manufacturing rebounds. The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) for January rebounded and moved into expansionary territory for the first time since July 2019. Trade-related components improved, likely signaling the impact of the U.S.-China phase-one trade deal. New Orders, an important leading indicator, also showed strength. While a positive signal of stabilization, further acceleration may be delayed if the coronavirus temporarily weighs on manufacturing.

Iowa caucuses launch primary season. As is traditional, Iowa launched primary elections season last night, but logistical problems thwarted the release of an official vote count, so we’ll have to wait another day for any clarity on the outcome. With a crowded field, it may be difficult for any candidate to stand out.

10-year Treasury pullback about normal for the cycle. While the 10-year U.S. Treasury yield generally has been declining over the course of the current economic cycle, fluctuations have been normal: The benchmark yield has seen six advances of at least 75 basis points (0.75%) and a similar number of declines. The recent low of 1.47% on August 28, 2019, came after a drop of 1.77% over a period of 293 days, both about average for this cycle. (Cycle average is a drop of 1.63% over 298 days.) While volatility, uncertainty about the impact of the coronavirus, and international buying pressure could drive further declines, we believe the current level for the 10-year Treasury yield of 1.58% is not in line with economic fundamentals, and we see potential for a modest rebound to a year-end range of 2% to 2.25%. For more details on major moves in the 10-year Treasury yield, see LPL Research’s daily blog.

How January went. When we consider the nature of recent stock market volatility amid spreading coronavirus fears, we have to wonder if January really will be predictive of the rest of the year. Find out what LPL strategists think in the new Market Signals podcast, As Goes January. (client approved)

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