Dow Hits All-Time High Before China GDP Estimates Ruin Streak
February 7, 2020
After two consecutive weekly losses, bulls and opportunists re-grouped this week to send the Dow Jones Industrial Average to an all-time high of 29,379.77. The week’s rally was driven by news that the Chinese central bank would inject more than $242 billion to support its country’s economic growth, while indicating it would provide additional stimulus if conditions continue to warrant. U.S. economic data gave markets more to cheer with the ISM Manufacturing Index showing that the manufacturing sector expanded in January for the first time since July. The week’s payroll also posted notable gains, blowing past economists’ expectations. Despite the trove of positive developments overall, the week’s rally was cut short on Friday as analysts slashed their estimates for China’s Q1 2020 GDP. Still, it was a very strong bounce following last week’s sell off, resulting in the Dow tacking on 3.00% for the week.
ISM Manufacturing Index Sparks Market Rally
The ISM Manufacturing Index helped investors forget their fears on Monday. The index rose to 50.9 in January, its highest level since July. Readings above 50 indicate expansion, while readings below 50 indicate contraction. January’s reading was notable because it marks the first time in six months in which the manufacturing sector has expanded. Overall the report showed rising business demand with the new orders metric, in particular, rising to 52 from 47.6 in December. Even before this most recent ISM reading, anecdotal evidence had suggested that manufacturing was mending itself following the Phase 1 trade deal signed with China in mid-January. Unfortunately, the coronavirus has thrown a wrench in things by disrupting the global supply chain and the availability of manufacturing inputs. We’re likely to see a sharp retrenchment for the ISM in February, but for the time being investors are betting that any such reversal will be temporary.
Monster Jobs Report
The U.S. jobs market crushed expectations in January, adding 225,000 jobs to the payrolls compared to the 158,000 Dow Jones economists had forecasted. Jobs growth was broad, led by education and health services which added 72,000 to the payrolls. The construction sector also saw notable gains, helped by a mild January which led the sector to add 44,000 jobs. Leisure and hospitality rounded out the top three sectors, adding 36,000 to the payrolls as a strong economy has driven increased consumer demand for restaurants and bars. Despite strong job gains, the unemployment rate ticked higher to 3.60% from 3.50%. The increase was driven by a 0.20% increase in the labor force participation rate to 63.40%, which is its highest level since June 2013. Workers also saw wages rise 3.10% from year ago levels. Overall, the jobs report was perfect, showing solid growth in jobs and wages but stopping short of requiring a monetary policy response.
Markets may have given up some of their weekly gains on Friday, but not before entirely recovering from last week’s sell off and then some. With the human and economic impact from the coronavirus still piling up, analysts have begun providing their first, preliminary estimates for China’s Q1 2020 growth rate. So far, these estimates have ranged from +1% to -2% compared to the 6% that China posted in Q4 2019. The magnitude of the decline and the variance in ranges themselves illustrates just how much uncertainty exists over the virus’ ultimate impact. While it is looking increasingly likely that China will see a sharp slowdown in Q1 2020, investors were very quick to take advantage of the buying opportunities last week’s fears presented. Markets gained convincingly during four of the week’s five trading sessions, indicating that investors still believe the economic toll from the virus will ultimately be transient.
The Week Ahead
Back on Terra Firma
This week, we are shifting our gaze away from the spectacle of various terrestrial news and events towards the sky — and space in particular. Yesterday, NASA astronaut Christina Koch safely returned to earth after spending 328 days on the International Space Station (ISS). She landed in a Russian spacecraft in the grasslands of Kazakhstan along with two of her ISS crewmates: European Space Agency astronaut Luca Parmitano and Russian cosmonaut Alexander Skvortsov. Koch now holds the record for the second-longest single spaceflight by a U.S. astronaut. Former NASA astronaut Scott Kelly holds the longest single spaceflight for U.S. astronauts at 340 days, set in 2015-16.
During her mission, Koch completed six spacewalks, including two with fellow NASA astronaut Jessica Meir, and spent a total of more than 42 hours outside the station. During one spacewalk, Koch and Meir spent more than seven hours making repairs on the ISS. After replacing a faulty battery charge/discharge unit, the astronauts installed hardware on the exterior of the station’s European Columbus module and performed several other maintenance and repair tasks. Koch’s long-term stay gives scientists a better understanding of the impact of space radiation and the lack of gravity on the human body and how to ameliorate the effects. The lack of gravity can cause bones to leech calcium and lead to kidney stones and osteoporosis. In addition to being a test subject for a variety of studies about human health in space, Koch participated in more than 200 investigations during her mission. She conducted research into microgravity crystals that may support the development of cancer treatments. She helped install a BioFabrication Facility that will test print organ-like tissues in space. She conducted studies on space crop production, and research into how fire behaves in space to help spacecraft use fuel more efficiently and prevent fires.
Koch supported research in the Cold Atom Laboratory (CAL) on the ISS. In the CAL, clouds of atoms are chilled to about one ten-billionth of a degree above absolute zero and become nearly motionless which provides scientists longer observing times, allowing them to study behaviors and quantum characteristics that wouldn’t be possible otherwise. Koch was chosen by NASA to join the astronaut corps in 2013 and completed astronaut candidate training in 2015. She was one of eight candidates chosen from a pool of more than 6,000.
The ISS launched in 1998. It is the Earth’s only microgravity laboratory. It’s about the size of a football field, and there are three to six crewmembers on board at all times from Russia, the U.S., Japan, Canada, and Europe. It circles the Earth every 90 minutes at an altitude of about 220 miles, traveling at about 17,500 miles per hour, which gives the crew 16 sunrises and sunsets every day.