Market Commentary – January 2020

U.S. equity markets initially got off to a strong start in January, which was bolstered by the signing of a long-awaited phase-one trade deal with China. Unfortunately, the rally did not last long due to the outbreak of Wuhan coronavirus in mainland China. As a result, the last trading day of January was the worst single day for U.S. stocks since August 2019.

At the time of writing, there have been 17,486 confirmed cases and 362 deaths globally from this strain of coronavirus. While these figures appear startling, they mean nothing without a point of reference. In the U.S. alone, 19 million people have been infected with the influenza virus and 10,000 people have died during the current winter flu season. One does not need to be a medical expert to see the unjustified nature of the panic around coronavirus. While global macroeconomic fundamentals appear to be strong for now, we believe continued fear of a pandemic could eat into future growth numbers. The Chinese government has already implemented monetary stimulus in response to the virus and other countries may soon be forced to follow.

Turning to politics, the U.S. Democratic presidential primaries are entering full swing in February and U.S. markets could see some volatility as a result. Our base case remains that Joe Biden will get the Democratic nomination. To market participants, Biden represents the safest Democratic candidate. Any significant momentum for Bernie Sanders or Elizabeth Warren would have potential negative implications for risk assets due to their progressive policies. While the 2020 U.S. presidential election is nine months away, market volatility will surely pick up as we get closer.