Pro Perspectives 1/30/20

January 30, 2020

Today, the behavior in stocks and interest rates had market participants contemplating a significant drawdown in stocks, and the onset of panic surrounding the pandemic threat.

By the end of the day, with stocks climbing well off of the lows, the focus has shifted to the four trillion-dollar giants (Microsoft, Apple, Google and Amazon) – two of which crushed Q4 earnings estimates today.

So, we have Q4 corporate earnings that continue to look strong.  And that supports the data on the economy, which is good — a very strong consumer with an outlook for improvement in investment, government spending and better (post-trade war) exports. 

But with numbers rising on the coronavirus, we have an overhanging risk

Sound familiar?   

Think about all of the events along the way over the past ten years: the near global economic apocalypse, there was Cypress, Greece, the near defaults of Italy and Spain, the debt ceiling sagas, government shutdowns, Russia/Ukraine, threats from North Korea, the Ebola scare, an oil price crash, Brexit, trade war and more.

All of these were threats that carried the potential of huge negative, and global, consequences.
But throughout, what mattered most, for the economy and for markets, was globally coordinated intervention, mainly in the form of monetary policy. The central banks were in charge. They were promoting growth and stability through QE and through an explicit commitment to act against shocks.  Amazingly, that continues to be the case.