U.S. equities ended the month of January on a sour note. The S&P 500 lost 1 % while the Dow was down 2.1%. The only major market index that held positive territory was the NASDAQ, which advanced 1.4%.
January was a pretty volatile month for the markets. As we rang in the New Year, we experienced heightened tensions with the Middle East with the targeted drone attack killing Qasem Soleim, an Iranian General in the Islamic Revolutionary Guard Corps. By mid-month traders were in an upbeat mood, reacting to news out of Washington: the signing of the phase-one trade deal between the U.S. and China as well as the Senate passage of the U.S.-Mexico-Canada Agreement (USMCA). In addition, a new earnings season started. Risk appetite grew and spurred all three of the major Wall Street averages to record highs.
President Donald Trump and Chinese Vice Premier Liu He signed off on a new, partial U.S.-China trade pact. In this deal, China agrees to buy at least $200 billion more of American products, crops, and energy futures over a 2-year period, and it must submit an “action plan” by mid-February, detailing how it will better protect American intellectual property and cut counterfeiting of American goods. The U.S. agrees to halve 15% tariffs on $120 billion of Chinese imports (other tariffs slated for last December was also scrapped earlier as part of this agreement).
By the final trading week of the month Investors were clearly worried about the potential economic impact of the Coronavirus virus, particularly as to how it will affect China, which has grown to be a global production powerhouse and voracious consumer of goods. According to some estimates, the disease could wipe out $60 billion or more from that nation’s economy in the current quarter alone.
According to Stock Trader’s Almanac, going back to 1950, when the S&P 500 was positive in January, 86% of the time, the full year returns turned out to be positive. This track record is even better in an election year. In a Presidential election year, when January is positive, the year is positive 100% of the time.
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