Domestic stocks had a strong start to the year but soon ran into headwinds related to geopolitical risks in Iran and the Wuhan coronavirus.

Coming off the heels of a strong year, the domestic equity markets took investors on a wild ride in January, starting off relatively strong then running into headwinds in the form of increasing concern about rising geopolitical risks in Iran, as well as the Wuhan coronavirus and its perceived debilitating impact on people as well as global markets, explained Raymond James Chief Investment Officer Larry Adam. Although it’s unclear how severe the coronavirus will be, it has already disrupted China’s economy as Wuhan is an important link in the electronics and automobile supply chains. This uncertainty likely continues to weigh on markets in the short term until fears subside; but with prior epidemics as a guide, we believe the market impact will eventually prove transitory, according to Joey Madere, senior portfolio strategist, Equity Portfolio & Technical Strategy.

Market observers are also keeping an eye on the primaries and caucus results. Election years often bring increased volatility, and Raymond James Washington Policy Analyst Ed Mills believes this year will be no different. However, with the signing of phase one of the U.S.-China trade deal, we may see some stabilization now that there’s less uncertainty about further tariff increases. The question remains whether both sides can meet their commitments, and what happens if the European Union becomes the next target on the trade agenda.

Despite some bumps in the road, January continued some of the momentum from last month and last year, as gross domestic product grew at an estimated 2.1% annual rate in the fourth quarter, and we saw better-than-expected earnings growth. GDP growth is expected to remain mixed, but generally moderate in 2020, according to Chief Economist Scott Brown. The S&P 500 barely slipped into negative territory in January, while the Dow Jones Industrial Average declined 1% and Russell 2000 slid 3.26%. The NASDAQ ended up in positive territory, returning almost 2% for the month.

 

12/31/19 Close

1/31/20 Close

Change
Year to Date

% Gain/Loss
Year to Date

DJIA

28,538.44

28,256.03

-282.41

-0.99%

NASDAQ

8,972.61

9,150.94

+178.33

+1.99%

S&P 500

3,230.78

3,225.52

-5.26

-0.16%

MSCI EAFE

2,036.96

1,993.72

-43.24

-2.12%

Russell 2000

1,668.47

1,614.06

-54.41

-3.26%

Bloomberg Barclays
U.S. Aggregate Bond Index

2,225.00

2,264.47

+39.47

+1.77%

Performance reflects price returns as of market close on January 31, 2020.