In a weekly economic and market impact, JP Morgan, one of the portfolio strategists we utilize for client accounts wrote the following about the impact of the coronavirus on the economy and markets so far…
Last week, concerns around the spread of COVID-19 and its impact on the global economy sent the S&P 500 down 11.4% and 10-yr. U.S. Treasury yields to an all-time low of 1.13%. The continued spread of the virus adds downside risk to first quarter 2020 U.S. GDP estimates, but numbers released this week suggest that the U.S. economy was on solid footing before the COVID-19 issue began to gather steam. The U.S. consumer continues to look strong, with January numbers for consumer confidence and sentiment remaining elevated at 130.7 and 101.0, respectively, while consumer spending also looked solid, rising 0.2% in the last month. Furthermore, durable goods orders fell -0.2% in the last month, which was less than expected, while core capital goods orders surprised to the upside, rising 1.1% in the last month. Arguably, the impact of COVID-19 on corporate profits will be more substantial than is the case with respect to GDP, as the S&P 500 gets roughly 35% of its sales from abroad and is more sensitive than the broader economy to the secondary effects such as supply chain disruptions. While only a handful of companies have adjusted 2020 guidance to include impacts from COVID-19, those companies with notable international exposure have mentioned COVID-19 as a risk to profits on their fourth quarter 2019 earnings calls. Although the overall impact on the economy and corporate profits is still largely unknown, and will in part depend on the duration and extent of the outbreak, investors should remember that this impact is likely to be transitory.
