The U.S. stock market ended the week largely downward as fears of the coronavirus’s impact on the global economy outweighs overall better-than-expected corporate earnings. Interest rates also moved lower amid the coronavirus fears as the 10-year treasury yield dropped from 1.68% last week to 1.52% today. The price of gold jumped 1.46% to $1,593 an ounce as investors flee to the haven metal. The price of crude oil dropped by 5.04% to $51.63 a barrel, which can also be primarily attributed to the fears of the coronavirus.
This Week's Economic Highlights
Durable goods orders surged by 2.4% in December of 2019 but still finished the year down 2.5% as the trade war caused a scale back in orders. Much of the rise in December’s orders can be attributed to the military as orders for ships and planes skyrocketed 90%. When excluding military orders, durable goods orders fell 2.5% in December.
The Federal Open Market Committee (FOMC) left the Fed’s fund rate unchanged at a target range of 1.50% to 1.75%, as expected. The FOMC stressed that the U.S. economy is in good shape but will be closely monitoring the severity of the coronavirus and its impact on the global economy.
Initial unemployment claims fell by 7,000 to a seasonally-adjusted 216,000 for the week ending January 25th. Surprisingly, claims for the prior week were revised up by 12,000 to 223,000. That said, the more stable four-week average of initial claims only dropped by 1,750 to 214,500.
The U.S. economy (GDP) grew at a modest annualized rate of 2.1% in the fourth quarter of 2019 as it gets a boost from a narrowing trade deficit. Consumer spending, which accounts for nearly 70% of GDP rose at an annualized rate of 1.8% in the fourth quarter of 2019, after rising a more substantial 3.2% and 4.6% the two quarters prior.
In December, consumer spending increased by a moderate 0.3% while personal incomes only rose by 0.2%. Meanwhile the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation barometer, rose a steady 0.3% in December. However, over the past year PCE has only risen by 1.6%, well below the Fed’s 2.0% target.
“It’s only when the tide goes out that you find who has the Corona Virus.”
– Warren Buffett
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