Equity Overview

Investors in January favored growth stocks over value stocks.  Technology and utilities were the strongest while energy was the weakest. Volatility was subdued until the last week of the month, when concern about the coronavirus impacted the market.

Fourth quarter corporate earnings reported in January were modest. With 45% of S&P 500 companies reporting, the blended growth rate was negative at -0.3%, but this was somewhat better than consensus expectation of -1.6% at the end of the quarter.  In addition, 69% of companies beat consensus earnings estimates (below the one-year and five-year averages) while 65% beat consensus revenue estimates (better than the one-year and five-year averages).

Macro Overview

Economic data reported in January were generally positive.  Retail sales, housing starts, and new home sales all showed gains, unemployment remained low, and consumer sentiment improved.  The Commerce Department initial estimate of 4^th quarter GDP growth was 2.1%, reassuring in light of challenges to the economy (but well below the 3-4% rate targeted by the administration).  The weak link was manufacturing, which declined for the fifth consecutive month.

The Fed left interest rates unchanged and gave no indication that rates would rise anytime soon, as inflation remained stubbornly below its 2% target.

Internationally, the primary focus was the appearance of coronavirus in China, which resulted in widespread quarantine, the shuttering of manufacturing facilities, and anxiety about the impact on global growth.  This overshadowed several other events which in a different environment could have dominated headlines:  the assassination of a prominent Iranian general by the United States; the consummation of Brexit, as Britain formally withdrew from the European Union; and the virtual collapse of growth in the European economy in the 4^th quarter, as statistics indicated a gain of 0.1% and a renewed risk of recession.