Fidelity Bank

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January 2020 Market Review

William J. Fennie III, CFA

After a fantastic 2019, markets started off the new decade on the same pace. The S&P 500 reached a new all-time high on January 17^th. However, concerns over the coronavirus outbreak put the market on a brief bed rest. Equity markets have been resolute in the face of a multitude of geopolitical uncertainties over the last few years. As of this writing (February 7^th), markets appear to be steadfast in the face of this epidemic. After a few brief days of volatility and sharp sell offs, the S&P 500 regained its loses and reached a new all-time high on February 6^th. During January, US stocks lost 4 basis points. Although safe-haven assets did quite well, the Bloomberg Barclays US Aggregate Bond index gained 1.92% in January.

Equity

With fears of sudden economic stop, commodity dependent companies bared the brunt of the coronavirus panic. Energy stocks plunged 11.05% and materials stocks dropped 6.22% while the traditional safe haven, Utilities, gained more than 6.65% in January.  Large Cap Growth stocks fared well gaining 2.24% with Technology stocks helping pave the way, gaining 3.96%. Large Cap Value stocks tend to be sensitive to commodity prices and interest rate levels. January brought about both falling commodity prices and interest rates; not surprisingly, Large Cap Value stocks fell 2.15%.  

As investors looked for safe havens, the US Dollar gained. Dollar strength detracted returns for US investors in Developed Markets and Emerging Markets. The Dollar Index, which measures the US Dollar against Developed Market currencies, gained about 1.00% in January. The MSCI EAFE index lost 1.23% in local currency terms but lost more than 2.09% in US Dollar terms. The MSCI Emerging Market Currency Index weakened by 1.11% versus the US Dollar in January. The MSCI Emerging Markets index lost 3.29% in local currency, but the conversion to US Dollars caused that loss to become a 4.66% for US investors.  China, whose markets were closed from January 23^rd to February 3rd with the new year holidays, has lost 5.71% year-to-date as of February 7^th. 

Fixed Income

As investors looked for safety, rates fell across the yield curve causing the Bloomberg Barclays Treasury Bond Index to gain 210 basis points in January. With the fall in rates, emerging once again is some inversion to the yield curve. 1 Month to 6 Month rates ended January higher than 1, 2, 3, 5, 7, and 10 Year rates.

With the flight to a safety driving down rates, Investment Grade Corporates rose 2.34% in January. High Yield Bonds, which are less sensitive to change in rates, gained only 0.03% in January. However, the High Yield spread to 10 Year Treasury bonds jump by 74 basis points to end the month at 4.01%. The long-term average spread is about 5.13%. High Yield bonds yielded approximately 5.52% at the end of January.

After rising to negative 15.9 basis during January, German 10 Year Bunds closed the month at negative 43.4 basis points as contagion fears on the coronavirus sent investors fleeing from risk assets. US Dollar strength detracted from Emerging Markets Debt in January, helping set the asset class back about 1.30%.

Real Assets

The Bloomberg Commodity Index lost 7.36% in January as fears of a sudden economic stop sent energy and industrial metals downward. Oil alone lost more than 15% and copper lost nearly 10%. As would be expected, the spot price of gold jumped more than 4.25%. In continuation of 2019’s success, REITs added 1.27% to start the new decade.

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^{January 2020 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data as of 9/30/2019.  References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large‐cap segment of the U.S. equities market.}