The Week in Review: February 24, 2020
Coronavirus, China, and Oil
We’ve experienced a modest increase in volatility since the coronavirus epidemic surfaced, but stocks have held up reasonably well so far. That’s not the case with oil.
The U.S. benchmark price for crude oil5 fell nearly 22% between January 6 and February 4 (St. Louis Federal Reserve) amid worries the virus will slow economic growth in China and weaken the demand for oil.
The price of oil plays a big role in the price at the gas pump; consequently, it’s not a surprise that gasoline prices have slipped. The average price for regular gasoline in the U.S. peaked this year at $2.61 per gallon on January 7 and bottomed at $2.42 on February 9, according to GasBuddy.com. As of Feb. 21, it’s up about 5 cents from the Feb. 9 low.
Notably, falling prices aren’t following seasonal trends, as was generally the case last year.
It’s a benefit to drivers who pay less to fill up the gas tank. But falling prices pressure sentiment among the nation’s energy producers and manufacturers that crank out energy equipment.
Meanwhile, the epidemic’s impact on stocks this month has been limited. During February, the S&P 500 Index registered 7 closing highs (through Feb. 19, St. Louis Federal Reserve).
Historically, epidemics have had a limited effect on stocks. That’s been the case so far. But modeling specifics is not an exact science; hence, the ebb and flow over concerns about the virus has been driving sentiment.
Given factory and workplace closures in China, some larger U.S. firms whose supply chains run through China have begun to warn that Q1 could be impacted by the coronavirus.
Closer to home, economic data have been mixed but cautiously encouraging.
For example, job openings have fallen in recent months (U.S. BLS), suggesting businesses may be turning a bit more cautious. Still, the job market remains tight, job growth has been robust, and layoffs remain low, per U.S. Dept of Labor data.
Further, the Conference Board’s Leading Economic Index jumped to a new high in January, building permits for single-family homes are at a cyclical high (U.S. Census), and two regional manufacturing surveys for February rose much more than anticipated (NY/Philly Fed).
With the economy growing between 2-3% in Q1 (GDPNow model from the Atlanta Fed), we’d expect data to be generally positive. One thing we’re not seeing: conditions that typically precede a recession remain at bay.
If you have any questions or concerns, feel free to reach out to me, Will, or Tyler.
Two for the Road
The Coronavirus is hammering a global freight industry that relies on China. Shipping rates for the massive ships that carry raw materials have dropped more than 90% since the peak of September 2019. - Bloomberg, January 31, 2020
There are 300,000 federal criminal offenses on the books in America of which many, like the illegality of carrying a rake from NY to NJ, are outdated. However, recently a woman was prosecuted for sheltering animals during a hurricane and prosecutors filed criminal charges against her for practicing veterinary medicine without a license. A bartender in Denver was jailed for infusing vodka when he mixed things like pickles and bacon and put them back in the bottle. - Trib Live, February 7, 2020
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