February Investment Bulletin

Bill Norris
February 05, 2020

Stay current on what’s happening in the economy to help you better understand how the financial news relates to your investments.

January Key Drivers

After a good start to the year, geopolitical risks became the focus for investors in January, putting pressure on global equities and acting as a catalyst to push global interest rates lower. The increased tensions between Iran and the U.S. led to concerns of a broader conflict impacting oil prices and gold, but unease between the two countries tapered off by mid-January.

By late January, investors and markets were once again rocked by the news of a new and increasingly risky virus that began in China and had spread to more than 22 countries with over 10,000 confirmed cases. Given China’s contribution to global growth, a prolonged period of dealing with the virus (shutting down travel, impacting consumer spending, etc.) could lead to a significant impact on global economic activity. Many global companies with operations in China noted the outbreak’s negative impact on future sales and earnings.

Fourth-quarter 2019 earnings season kicked off with better-than-expected results from financials, communication services and information technology companies. It is early in the reporting period, but 73% of companies reporting so far have topped their earnings estimates.

Global Asset Class Total Returns Through 1.31.2020

Global Asset Class Total Returns Through 1.31.2020

What to Watch in February

Investors will be closely watching how the coronavirus situation unfolds in February. In the near term, the virus will probably be the main driver of global markets (both equities and credit) until investors see some sort of leveling off of the cases, particularly in China. As travel bans grow, companies pare back on their operations in Asia and consumers pull back from their normal routines, it is clear this outbreak will have an economic impact. Estimates for the impact on growth in the first quarter are starting to come in, with Bloomberg reporting that the virus impact could pare U.S. and Chinese growth by 0.4% and 1.5%, respectively.

The presidential election season kicks off with the Iowa caucus in early February. Historically, the winner of the Iowa primary tends to gain strong momentum heading into New Hampshire and Super Tuesday, scheduled for March 3. Investors will be closely watching who comes out of Iowa, and investment implications will begin to be weighed as the visibility improves. As of the beginning of the month, Senator Bernie Sanders appears to be the front-runner heading into Iowa.

Fourth-quarter 2019 earnings season will wrap up in February with about 60% of companies in the S&P 500 Index reporting. Investors will be paying close attention as companies in healthcare, consumer discretionary and retail report their results. Guidance for the rest of 2020 will be key for investors.

 

Bill Norris is chief investment officer and head of asset management for CIBC Bank USA. In this role, he oversees investment management, trust and estate services to individual and institutional clients of CIBC Bank USA. Bill also serves as a member of CIBC Private Wealth Management’s Asset Allocation Committee with more than 35 years of industry experience.