Our Thoughts

FJY News to Know #57

Several Forces, both Natural and Political, Could Compromise the Markets in Coming Months

Fears regarding the coronavirus are beginning to impact the markets. The Dow was getting set to push beyond the 30K-point mark, but that changed — along with the S&P 500 index, which lost 2.12% last week. Worry over slow growth has spawned a bond rally, sending negative-yielding global bonds to more than $13 trillion, an increase of about $2 trillion since the start of 2020. The other threat to the markets is the presidential race: Recent polls show the least market-friendly candidate Bernie Sanders holding a slim lead over rival Joe Biden, 27% vs. 26%. For more perspective on yields and bonds, visit this page.

 

Although the UK Has Left the European Union, It Still Faces Possible Roadblocks

One of the primary hurdles is agreeing on a trade deal with the EU: Formal talks are expected to begin in March after the remaining 27 EU countries have agreed on instructions for their representing negotiators. Getting any agreement put to bed and executed will take at least a couple of months towards the end of 2020. However, that will more than likely result in a barebones free trade deal — one which could spawn some complications. Another problem with leaving the EU is security: Leaving the EU means leaving Europol, the joint European agency that participates in investigations regarding organized crime. To learn about the other three roadblocks incurred by Brexit, click here.

 

Stock Valuations Are High According to Federal Reserve Chair, But One Valuation Metric Never Tells the Full Story

Warren Buffett, perhaps the most famous investor of all time, said that valuation metrics must be considered in the context of interest rates. “Everything in valuation gets back to interest rates,” Buffett said in 2017. “Valuation metrics can be very important — or totally unimportant.” Those words could be timely today. According to FactSet, the forward 12-month price/earnings (P/E) ratio is at around 18.6, well above the market’s 5-year average of 16.7 and its 10-year average of 14.9. Federal Reserve Chair Jerome Powell chimed in on valuations at a recent press conference. “We do see asset valuations as being somewhat elevated,” Powell said. His brief discussion of them was part of a broader debate about financial conditions. Some of his comments recalled what his predecessor, Janet Yellen, said during her tenure as Fed chair. To read more about what might cause these valuations, read this article.

 

China Wrestles with the Coronavirus while Trying to Boost Its Economy

The first death from the coronavirus outside China came Saturday. A 44-year-old Chinese man from the city of Wuhan traveled to the Philippines and died there. The vice governor of China’s Hubei province said the virus outbreak was still “severe and complicated.” A total of 304 people have died in China, and infections jumped to 14,380. Beijing is facing mounting isolation as countries introduce travel restrictions — risking a slowdown in the world’s second-largest economy. China’s central bank said it would inject a hefty 1.2 trillion-yuan ($173.8 billion) worth of liquidity into the markets to help matters. To read more about the outbreak and its effect on the rest of the world, click here.