Stocks fall after jump in coronavirus cases. China’s Hubei province where the virus outbreak originated reported 15,000 new cases overnight after revising its diagnostic method for reporting data to include “clinically diagnosed” cases — a quicker method that casts a wider net.
Pause not surprising. After stocks rose in seven out of the past eight sessions, a bit of a pause for the S&P 500 Index would not be surprising, as the S&P 500 opened about 0.4% lower this morning. Asian markets closed mostly lower overnight, led downward by a 0.7% decline in the Shanghai Composite, while European markets are down about 0.5% in midday trading overseas. The 10-year Treasury yield is down modestly to 1.61%.
Virus outbreak interrupting, not halting, global growth stabilization. We see the disruption to economic activity in China as delaying, not halting, the global economy’s progress toward stabilization. Improvement in the Organisation for Economic Co-operation and Development (OECD) global leading indicators is among the positive developments. The reading for the major seven economies improved in December for the third straight month while the outlooks for the United States, United Kingdom, Germany, and Brazil were all upgraded. As discussed in our Weekly Market Commentary, we have warmed up to developed international equity markets, but are waiting for more signs of a sustained turn before making a move.
Consumer inflation in holding pattern. The core Consumer Price Index (CPI), which excludes food and energy, rose 2.3% year over year in January. This is in line with recent months and at the high end of the range of the economic cycle, but not high enough to be worrisome for the Federal Reserve (Fed) or financial markets in our view. These data show that companies still have ample pricing power, a good sign for future profits and economic durability. We discuss the CPI data today on the LPL Research blog.
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