Markets “In a Nutshell” for March 11, 2020
Investment Week at a Glance
Stocks were mixed last week. The Dow Jones Industrial average gained 1.8% while the S&P 500 was up 0.6%. The New York Stock Exchange Composite (2,000 stocks) dropped 0.2%. The “average investor’s index” (Value Line index) was down 3.2%. Foreign stocks (EAFE index) lost 2.3%. Bond yields fell (bond prices up) as the 10-year Treasury ended at 0.77%. (Data sources: Barron’s Financial, Wall Street Journal)
Scary Times and Yet Opportunities
Spreading coronavirus fears dominated headlines again last week. While no one knows for sure when health professionals will bring a vaccine to market, it will happen, and this crisis will fade into memory. In the meantime, there are opportunities for investors. Barron’s (3/9/20) lists a group of dividend stocks that can be attractive especially as bond yields have plunged towards the zero-bound. So, what stocks does Barron’s like? Altria Group tops the yield list at 7.8% dividend, followed by Dow at 7.0%, Exxon Mobil at 6.9%, Valero Energy at 6.4% and Prudential Financial at 6.1%. The list is dominated by energy and financial companies as they have been hit the hardest during the two-week stock market correction.
Global Growth To Be Hit by Coronavirus (At Least Temporarily)
Economic growth projections have come down in the wake of the spread of coronavirus. Deutsche Bank, for one, has cut U.S. GDP forecast for 1st quarter from 1.7% to 0.6% and 2nd quarter from 2.2% to negative 0.6%. Corporate profits will also likely be hit. Goldman Sachs revised it’s 2020 S&P 500 profit forecast to zero. Despite the drop in estimated profits, Wall Street firms forecast no recession and still see positive stock returns by year end as the economy recovers during the 2nd half of 2020. Of course, all depends on how quickly the virus is contained and how quickly the world can resume to “business as usual.”
As an article from Time Magazine (3/5/20) points out, one possible effect of coronavirus is the continued de-globalization of world economies. Globalization (when world economies interact more closely) started in the 1970’s and grew tremendously after the fall of the Soviet Union in 1990. The trade war the past couple years started a move away from globalization. The coronavirus event is likely to push world economies farther along the de-globalization path. As global supply chains have been impaired, more companies will look to create “in-sourcing” capabilities to protect against future unknown disruptions to world economies.
What percent of the U.S. economy is made up of manufacturing?
Answer is below.
Have a Great Week!
Answer to quiz:
1. 11%, the lowest percentage since 1947.