Coronavirus Risk and Global Growth l LPL Market Signals Podcast

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Global markets continue to sink as the coronavirus spreads, reaching 28 countries in total so far. There are some silver linings, though, as the LPL strategists discuss positive fundamental news out of the U.S. and European economies. From earnings to leading indicators, the U.S. economy remains quite resilient.

Coronavirus fears spike

Over the weekend, the outbreak continued to grow, as the number of cases in South Korea, Italy, Japan, and Iran all spiked. Cases in mainland China appear to have steadied, but there’s growing concern about the overall impact to the global economy. Right now, the immediate impact is on the Chinese economy. As the strategists discuss, it’s impossible to virtually shut down the second largest economy in the world without expecting to have some major fall out. In fact, at the beginning of January, the International Monetary Fund (IMF) cut China’s 2020 growth to 5.6% from 6%. We’re watching this situation very closely, but overall we continue to see a healthy U.S. economy, and we would view any weakness as an opportunity.

Earnings remain strong

As fourth quarter earnings season wraps up, we are once again impressed by what corporate America had to say. Yes, earnings were up “only” 1-2% compared with the same quarter a year ago, but these earnings reports were much better than what was expected at the beginning of earnings season. As the LPL strategists discuss, the third quarter is appearing more and more like the trough for earnings. Energy was a big drag on earnings, and if we take out that group, overall earnings were actually up roughly 4%. Last, what companies had to say about the future was impressive, although the spread of the coronavirus outbreak over the past week has introduced some downside risk to the earnings outlook for 2020.

Some good news

Although stocks sold off hard to kick off the week due to the outbreak, there are some positives to discuss. For starters, the Conference Board’s Leading Economic Index (LEI), a composite of leading data series, rose 0.8% month over month in January, ending a string of lethargic readings. The LEI rose 0.9% year over year, signaling a potential bottom in the series and pointing to economic growth. Globally, the Eurozone Flash Composite Purchasing Managers’ Index (PMI) unexpectedly jumped to a six-month high, while the United Kingdom manufacturing PMI increased the most in 10 months. Meanwhile, Japan has continued to struggle since the consumption tax went into effect late last year, as the Japanese manufacturing PMI shrank the fastest pace since 2012.

Tune in now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the US and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Play, or Spotify.

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IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.  

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