While the first weeks of the year saw equities continue the same positive trend of 2019, news of a viral outbreak in China brought unexpected volatility, pushing global equities negative for the month. While the Coronavirus was initially contained to China, it has now spread to over 20 countries. The outbreak has caused concerns about potential impacts to the Chinese and overall global economies from the effect of travel advisories on tourism and business. Chinese economic output is likely to be negatively impacted by the travel restrictions and an expected decrease in spending. Global equities may experience a potential knock-on effect from the Chinese economic issues. Current expectations remain that the impacts will be short-lived once the virus is contained.

Prior to news of the Coronavirus threat, equities had been rising comfortably thanks to a continuation of 2019 momentum, an optimistic trade outlook and signs of positive economic growth. These signals are still present in the market and some strengthened throughout January, particularly consumer sentiment, short-term technical signals and leading economic indicators. We have seen this strengthening as an opportunity to increase equity exposure in both our domestic and international tactical equity strategies.

With the U.S. election ramping up in the coming months and the continued attempts to contain the Coronavirus, volatility could stay elevated in the coming weeks. We do however still expect market responses to the upcoming caucuses to be short-lived and sector-specific. Our models are showing structural strength behind equities so that impacts of the virus may be allowed to cycle through with little lasting impact. We will continue to keep a close watch on wage growth and consumer spending as consumers remain the main driver of the U.S. economy. We are also watching for a potential rebound in manufacturing and the response to last month’s events from the Federal Reserve.

By the numbers (YTD)*:

U.S. Equities | S&P 500: -0.1%

International Equities | ACWI ex-U.S.: -2.7%

U.S. Bonds | Barclays U.S. Aggregate Bond Index: 1.9%

Global Bonds | JP Morgan Global Aggregate Bond Index: 1.3%

NorthCoast Navigator

Negative Indicators

Neutral Indicators

 

 

 

Positive Indicators

Valuation

Equity valuations in the U.S. remained elevated throughout January, dipping only slightly due to the minor pullback. S&P 500 P/E ratio sits at 21.4 and forward P/E at 18.8. International valuations remain more attractive.

Sentiment

Consumer sentiment improved from December to January according to the University of Michigan consumer sentiment survey. The indicator hit an 8-month high at 99.8. Low employment and slow yet steady wage growth is likely boosting consumer sentiment.

Macroeconomic

Concerns about Coronavirus impacting global economies hurt equities, but current data still signals strength. Data released last month showed wages increased in the fourth quarter of 2019, making it the fourth straight quarter of growth

Technical

Technical indicators remained strong throughout January and short-term indicators actually strengthened in January. While the S&P 500 was slightly negative for the month, momentum remains strong from last year and the index sits above its longer-term averages.

The NorthCoast Navigator is a market "barometer" displaying NorthCoast's current U.S. equity outlook.  This aggregate metric is determined by multiple data points across four broad market-moving dimensions: Technical, Sentiment, Macroeconomic, and Valuation. The daily result determines equity exposure in our tactical strategies.

As of 1/31/2020. Data provided by Bloomberg, NorthCoast Asset Management. *Source: Bloomberg, NorthCoast Asset Management.

The information contained herein has been prepared by NorthCoast Asset Management LLC (“NorthCoast”) on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. NorthCoast has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by NorthCoast. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of NorthCoast. NorthCoast does not represent, warrant or guarantee that this information is suitable for any investment purpose and it should not be used as a basis for investment decisions. © 2020 NorthCoast Asset Management LLC.

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