A Ripe Time for Homebuying

Mortgage rates have fallen to a new all-time low for the fourth time this year. The 30-year fixed-rate mortgage averaged 3.13 percent for the week ending today, down eight basis points from a week earlier, according to Freddie Mac. The 15-year fixed-rate mortgage dropped four basis points to 2.58 percent.

The previous record low was 3.15 percent, set back at the end of May. Just one year ago, the 30-year home loan averaged 3.84 percent.

Not surpsrisingly, mortgage applications to purchase a home rose 4 percent last week from the previous week, the ninth consecutive week of gains and the highest volume in more than 11 years. Applications are a remarkable 21 percent higher than they were a year ago.

The Top Stocks in the COVID-19 Era

We have now passed 100 days since the World Health Organization declared COVID-19 to be a global pandemic. In that time, the markets have been on a roller coaster ride, with a steep plunge that was followed by a breathtaking climb.

Here are the ten S&P 500 stocks that have fared best over that period:

1. Diamondback Energy, up 56.8 percent
2. Abiomed, up 54.6 percent
3. Halliburton, up 49.7 percent
4. Fortinet, up 49.3 percent
5. PayPal Holdings, up 49.3 percent
6. Cadence Design Systems, up 47.9 percent
7. West Pharmaceutical Services, up 47.2 percent
8. Chipotle Mexican Grill, up 45.9 percent
9. United Rentals, up 44.8 percent
10. Marathon Oil, up 44.8 percent

Retail Comes Back

Another encouraging sign for the recovering economy: Retail sales rose 17.7 percent in May from the previous month, setting a new record. The gain easily topped the previous record of 6.7 percent from October 2001 — a month after the 9/11 terrorist attacks.

Clothing and accessories stores reported the biggest percentage gain at 188 percent. The category comprising sporting goods, hobby, musical instruments and book stores rose 88.2 percent. After being almost completely shuttered during the lockdown, food services and drinking places saw a 29.1 percent rebound in May.

Note, though, that the economy is still making up for lost ground. Despite the strong bounceback, total sales were still down 6.1 percent from a year ago.

The Online World Is Taking Over

Here's a sign of how much of our lives we spend online these days: Nasdaq announced on Friday that DocuSign, the electronic signature software company, would be joining its Nasdaq 100 index. What would it be replacing? The venerable but currently beleaguered United Airlines.

DocuSign just debuted on the Nasdaq back in 2018. It will join cloud companies Adobe, Workday and Zoom Video Communications on the index, reflecting the rise of cloud services as companies opt for systems they don’t need to operate on their own data center infrastructure.

The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from all industry sectors except for the financial industry.

Inside the Inflation Numbers

The Bureau of Labor Statistics says the consumer price index fell 0.1 percent in May, driven by deep discounting on energy, car insurance, clothing and public-transportation prices. The so-called core rate of inflation, which strips out volatile food and energy prices, also fell 0.1 percent

But those volatile categories have been rising. Prices for food consumed at home rose 1.0 percent after going up 2.6 percent in April. The cost of beef shot up a record 10.8 percent in May, reflecting shortages as a result of COVID-19 infections at meat processing plants.

Prices were held down by a 3.5 percent drop in the cost of gasoline, which followed a 20.6 percent drop in April. On other hand, while shelter prices are not rising as fast as they were at the beginning of the year, they are still increasing, up 2.6 percent in the past year.

The Fed's Forecast

After its meeting yesterday, the Federal Reserve said it will be years before it raises interest rates again. The Fed now doesn’t expect to lift its benchmark interest rate until 2023. Its Fed funds rate has been in  a range of 0-0.25 percent since mid-March, when the economy went into lockdown.

Along with the rate decision, the Fed also projected Wednesday that the American economy will shrink 6.5 percent in 2020. We've already seen GDP decrease by 4.8 percent in the first quarter of this year.

However, the Fed does not expect the recession to be long-lived. The central bank thinks that 2021 is expected to show a 5 percent gain, followed by 3.5 percent in 2022.

The Tech Rally

The Nasdaq Composite rose 0.29 percent yesterday to finish the day at a new record close of 9,953.75, after briefly breaking above 10,000 earlier in the day. Tech stocks led the way, which is why the Dow Jones was losing ground even as the Nasdaq was setting records.

The biggest tech stocks led the rally:

• Netflix rose 3.47 percent on the day 
• Facebook rose 3.1 percent  
• Apple rose 3.1 percent, setting a new high
• Amazon rose 3 percent, also notching a new all-time high 
• Google-parent Alphabet rose 0.28 percent

The Recession Is Officially Here

The longest economic expansion in American history is officially over: The National Bureau of Economic Research declared yesterday that the recession began in February. This was the fastest that NBER has declared any recession since the group began formal announcements in 1979.

Normally, economists define a recession as consecutive quarters of negative growth. But after GDP dropped by about 5 percent during the first quarter, NBER decided not to wait for a second quarter of a contracting economy, although it is widely expected to happen during the second quarter.

One notable thing about this timeline is that the extensive lockdowns due to the COVID-19 pandemic didn't really begin until March. The NBER said that employment, income and spending peaked in February and then fell sharply afterward as the viral outbreak shut down businesses across the country, ending nearly 11 full years of economic growth.

The Big Bounce

How's this for a rebound:  From the high on February 19 through the low on March 23, the average stock in the S&P fell 39.1 percent. But the average stock in the S&P 500 is now up 54.7 percent since the March 23 low. 

There is only one stock in the entire S&P 500 that's down since March 23: the beauty company Coty, and it's down less than 2 percent.  There are only eight stocks that aren't up more than 10 percent since March 23, including names like Walmart, Costco, and Kroger.

The average Energy sector stock is up more than 107 percent since March 23, but these Energy stocks are still down nearly 30 percent year-to-date because they fell 60 percent from February 19 to March 23.  Consumer Discretionary, Financials, Industrials, and Materials all have average gains of more than 50 percent since March 23rd.

May's Shocking Jobs Report

Some stunning numbers from the Bureau of Labor Statistics this morning, which is reporting that the American economy added 2.5 million jobs in the month of May. The headline unemployment rate fell to 13.3 percent last month, down  from 14.7 percent in April,

Most of this reflects workers who were temporarily laid off returning to their jobs. The number of unemployed who were on temporary layoff fell by 2.7 million in May to 15.3 million, following an increase of 16.2 million in April. Among those not on temporary layoff, the number of permanent job losers continued to rise, increasing by 295,000 in May.

The strongest category: Employment in food services and drinking places rose by 1.4 million in May, accounting for about half of the gain in total employment. This followed steep declines in this sector in April and March, when we lost 6.1 million jobs combined. Construction employment increased by 464,000 in May, gaining back almost half of April's decline. Employment increased by 424,000 in education and health services in May, after a decrease of 2.6 million in April.

Rise of the Small Caps

One of the big success stories of the market's comeback has been small-cap stocks. Following a yearslong bear market for small-capsthe Russell 2000 index, which tracks the performance of small-cap stocks, rose 20.9 percent during April and May.

That stretch marked the index's largest two-month percentage gain since 2009. Moreover, it is the best two-month relative performance to the S&P 500 index since February of last year, according to Dow Jones Market Data.

But keep in mind, one factor working in the favor of small-caps' rise is their dramatic underperformance over the past two years. While the S&P 500 consistently reached new heights throughout 2019 and in the first six weeks of 2020, the Russell 2000 still hasn’t regained the record high it set back in August of 2018.

The Post-Lockdown Economy

What will the economy - and our lives - look like after the pandemic? If consumers have to choose between spending a post-coronavirus-lockdown Saturday buying new clothes or at a restaurant having dinner, more will choose shopping. That’s according to a new survey from S&P Global Market Intelligence, which polled 1,250 people between April 30 and May 18.

When restrictions let up, 44 percent of consumers said they planned to head back to stores. But only 31 percent said they’d dine out. After three months, the dine-out result rose to 40 percent.

The thing consumers are most excited to spend on, according to the S&P survey, are professional services like hair salons and spas. More than half of respondents (55 percent) said they were eager to head back for those experiences.

A Look Back at May in the Market

The S&P 500 Index ended up rising 4.5 percent in the month of May. It is up 36.1 percent since bottoming out on March 23, although overall it's down 5.8 percent for 2020. 

These were the biggest gainers among the S&P 500 in May:

1. L Brands, up 36.2 percent
2. Fortinet, up 29.2 percent
3. Dish Network, up 26.5 percent
4. Fortune Brands Home & Security, up 26.5 percent
5. PayPal Holdings, up 26.0 percent
6. Albemarle Corp., up 24.6 percent
7. Lowe's, up 24.4 percent
8. News Corp., up 23.6 percent
9. Dollar Tree, up 22.8 percent
10. Oneok Inc., up 22.6 percent

Housing Springing to Life

There are some signs of very healthy life in the housing market, a good marker for the nascent economic recovery. Though the single-family home mortgage purchase index saw a more than 30 percent drop in April when compared to last year, it has reversed its course, according to new data out from the Mortgage Bankers Association.

The index is now up almost 10 percent compared to the same period last year. That indicates not just a rebound but real health in the home purchase market.

Meanwhile, mortgage applications to purchase a home rose 9 percent last week from the previous week and from a year earlier, according to the Mortgage Bankers Association’s index. It was the sixth straight week of gains for that figure, and a 54 percent recovery since early April.

The Beige Book Looks at Tennessee

The Fed's periodic Beige Book, surveying economic conditions in various part of the country, came out this week. The Atlanta district covers the economy here in Tennessee, and here's some of what it said:

• Retailers and auto dealers reported very slow sales, and hospitality was at a record low.
• "As demand shifted from restaurants to grocers as a result of safer-at-home practices, some food service supply chains were left with excess inventories while others, such as meat processing and packing, experienced shortages. However, the majority of firms have not increased prices, either due to a lack of pricing power or as a show of goodwill to troubled consumers."
• "Continued declines in discretionary consumer spending was partially offset by sales growth in grocery and household products, office equipment, and home improvement goods. Ecommerce activity continued to accelerate as brick-and-mortar sales continued to decline."
• On the brighter side, financial institutions reported growth in commercial loans as businesses accessed lines of credit and the Paycheck Protection Program (PPP): "Many contacts reported success in securing a PPP loan, which allowed them to avoid layoffs."

Consumer Confidence Is Stabilizing

A little bit of good economic news came out yesterday. The Conference Board's widely followed consumer confidence index rose slightly in May, after rapid declines in both March and April.

The Conference Board survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, fell to a reading of 71.1 this month from 73.0 in April. But the expectations index based on consumers’ short-term outlook for income, business and labor market conditions climbed to 96.9 from a reading of 94.3 in April.

The percentage of consumers expecting an increase in income dropped to 14.0 percent this month from 17.2 percent in April. But the proportion anticipating a drop fell even further, from 18.4 percent to 15.0 percent.

Oil's Roaring Comeback

Back in April, the U.S. oil benchmark, West Texas Intermediate crude, plunged below zero and into negative territory for the first time on record. But May is shaping up to be WTI’s best month ever on a percentage basis, going back to its inception in 1983.

WTI has jumped more than 70 percent in May and posted four straight weeks of gains. Chinese demand for oil in April rebounded to 89 percent of what it was a year earlier, according to IHS Markit, and the firm expects May demand to be 92 percent of 2019′s level. China is the world's largest importer of oil.

Remember, though, part of WTI’s rally this month is due to the historic low from which it bounced. Prices are still about 50 percent below January’s high of $65.65.

Thoughts for Memorial Day

Without memory, there is no culture. Without memory, there would be no civilization, no society, no future. ~ Elie Wiesel

He loves his country best who strives to make it best. ~ Robert G. Ingersoll

It doesn’t take a hero to order men into battle. It takes a hero to be one of those men who goes into battle, ~ Norman Schwarzkopf

Coronavirus and the Housing Market

Wondering how the coronavirus is affecting the housing market? The news is not good. Sales of existing homes fell 17.8 percent in April, and were 17.2 percent lower than April 2019, according to the National Association of Realtors. The drop in closings is the largest one-month decline since July 2010.

That puts the annualized pace at 4.33 million units sold, the slowest sales rate since September 2011. The supply of homes for sale fell 19.7 percent annually to 1.47 million units for sale at the end of April. That is the lowest April inventory figure ever.

The drop in inventory pushed prices to a new high. The median price of an existing home sold in April rose 7.4 percent annually to $286,800. That record does not account for inflation, but in nominal terms, it's a record high.

Splurging on the Pandemic

How have you been dealing with the pandemic financially? Although many Americans are struggling, there have also been reports of many people splurging on expensive items, just for the comfort of it.

Despite the fact that consumer sentiment has taken a huge dive and more than 33 million Americans have filed for unemployment over the past month and a half, nearly one in five people say they are spending more money now than before the coronavirus outbreak hit. That's according to a recent survey conducted by Credit Karma, a personal-finance website.

Among the people who said they’re spending more, 1 in 10 said they have gone more than $1,000 over their budgets since sheltering in place. Some 35 percent of Americans say they have made impulse purchases to cope with the stress of the coronavirus pandemic.

Airlines and Hotels

U.S. stocks staged a strong, broad rally on Monday, with some of the most beaten-down industry groups staging a bit of a comeback. The S&P 500 airlines industry group surged 14.3 percent as data from the Transportation Security Administration showed air passenger traffic had risen for four straight weeks. United Airlines was up 21.1 percent, the biggest gainer in the entire S&P 500.

Riding on the coattails of the airlines was the S&P 500 hotels, resorts and cruise lines industry group, which leapt 13.4 percent on the day. Expedia was the S&P's second-biggest winner, climbing 18.6 percent.

But things aren't quite back to normal yet. The S&P 500 airlines as a group are still down 61 percent this year, while the hotels, resorts and cruise lines industry group is down 51 percent for 2020, according to FactSet.

What's Falling in Retail

Sales at U.S. retailers sank a record 16.4 percent in April after coronavirus lockdowns shuttered much of the economy, the federal government reported on Friday. Retail sales fell in every category except online shopping. Sales also sank by a revised 8.3 percent in March, marking the worst back-to-back declines in modern American history.

Apparel was hit the worst: Sales dropped a stunning 79 percent at clothing stores, falling from $22.1 billion in February to $2.4 billion in April. Grocery stores, which had benefited from consumer stockpiling in March, posted a 13 percent decline in sales.

Receipts fell by 60 percent at electronics stores, 59 percent at furniture stores, 30 percent at bars and restaurants and 15 percent at pharmacies. Sales at auto dealers fell more than 12 percent, and gas stations saw a 29 percent plunge in sales.

Glimmers in the Unemployment Numbers

Jobless claims were up by another 2.98 million last week, according to figures out yesterday. But there might be a a small sign of encouragement: The incremental increase of less than half a million was the most modest weekly change since early in March.

It's not just that continuing claims rose by 456,000, but the fact the increase was from a downwardly revised previous reading. The prior week’s count of new jobless was revised down to 22.38 million.

There are little reasons for optimism popping up all over the country. Sixteen states posted a decline in the number of people collecting benefits in the week ended May 2.

An Important IRS Deadline

If you haven't filed your taxes yet, today might be a good day to do it. The official IRS deadline has been extended to July 15, but today at noon is the deadline for Americans to submit their direct deposit information to get your stimulus check.

If you have not filed your taxes, you can still submit your bank-account or direct-deposit information to register for the payments. The link can be found at irs.gov here.

Without direct-deposit information on file, the IRS said it will continue mailing checks, but those checks mailed out after today’s deadline would arrive by late May at the earliest. The IRS has already transmitted economic impact payments to nearly 110 million accounts via direct deposit and mailed out nearly 20 million paper checks as of early May.

The Low Beat

Companies and analysts love to lower earnings expectations to make them more beatable; over the past five years, 73 percent of S&P 500 companies have beaten their estimates. Everyone knew first-quarter earnings would be bad this year because of the COVID-19 pandemic, but nevertheless, they’ve been beating forecasts by the lowest rate in at least 10 years.

According to J.P. Morgan, only about 65 percent of the companies that have already reported results are beating estimates. That would be the lowest beat ratio since the 2008 financial crisis.

In aggregate, earnings are missing consensus estimates by about 0.5 percent, according to Credit Suisse, That is primarily because of a 22.3 percent miss by the financial sector. Over the past five years, by contrast, the average aggregate earnings beat is 4.9 percent,

Nashville Reopens, Slowly

Today's the day that Nashville begins to reopen. It will be tentative at first, with restaurants, bars (serving food) and retailers all permitted to reopen at half capacity. There are several other restrictions as well, including:

• Wearing of cloth masks by employees and patrons
• Screening employees temperature daily
• Cleaning of carts and other items at places that have them
• "Explicit expectations" of frequent hand washing

Gyms, salons and barbershops still remain closed.

April's Jobs Report

The April jobs report is out this morning from the Labor Department, and it's as bad as people were expecting. Last month, 20.5 million American workers lost their jobs, sending the unemployment rate skyrocketing to 14.7 percent.

Both numbers easily smashed post-World War II era records. April’s unemployment rate topped the post-war record of 10.8 percent but was short of the Great Depression high estimated at 24.9 percent. The financial crisis peak was 10 percent, reached in October 2009.

The biggest hit was to the leisure and hospitality industry, which lost 7.7 million jobs, 5.5 million of whom came from eating and drinking establishments. Education and health services lost 2.5 million, while professional and business services as well as retail both saw 2.1 million workers lose their jobs. Manufacturing and “other services” dropped by 1.1 million apiece, and government fell by 980,000.

The Situation in Europe

As we're surveying the damage done to the U.S. by the COVID-19 pandemic, the situation in Europe looks just as bad if not worse. The European Commission released projections yesterday that Europe’s economy will shrink by 7.4 percent this year.

A top official told residents of the European Union, which dates back to the aftermath of the Second World War, to expect the “deepest economic recession in its history.” To put the new figure in perspective, in 2009, during the global financial crisis, the 27-nation bloc’s economy shrank by 4.5 percent.

Greece will be worst-hit in the union, according to the forecasts, losing 9.7 of its economic output this year. The economies of Italy and Spain will most likely shrink by over 9 percent each this year. Poland would suffer the least, with a 4.5 percent recession.

The Lofty Stock Market

One of the few bits of good financial news we've gotten in recent weeks has been the recovery of the stock market. Here's the downside of that: U.S. stocks are trading at pricier valuations relative to corporate profits than at any point since the dot-com bubble in 2000.

As S&P 500 index firms continue to report first-quarter earnings, managements have often declined to provide guidance on future performance, given the uncertainty the coronavirus pandemic has created. Such an environment has allowed the large-cap index to trade at more than 22 times expected 12-month earnings, a level not seen in roughly 20 years, according to FactSet.

RBC Capital Markets predicts 2021 earnings will ultimately come in at $153 per share for the S&P 500. At $153 per share, that would leave the S&P 500 trading at roughly 18.8 times 2021 earnings, well above the five-year average of 16.7 and the ten-year average of 15.

Disney's Woes

A sign of what the pandemic is doing to one of America's largest and best-known companies: Walt Disney Co. profit dropped more than 90 percent in the second quarter, the company reported this morning. Executives said that COVID-19 cost the media giant more than $1 billion in profit just in its theme-parks division.

Disney reported fiscal second-quarter profit of $460 million, or 26 cents a share on sales of $18.01 billion. In the same quarter a year ago, Disney had reported profits of more than $5 billion.

This is all despite the successful launch of Disney+, the streaming service that has gotten off to a stronger-than-expected start. Disney+ launched in November and had already passed 50 million paying subscribers by April.

Looking at a Double Dip

Since the market bottomed out on March 23, the S&P 500 and Dow Jones have surged 23 percent and 24 percent, respectively. But we may not be out of the woods yet. When the stock-market slips into a bear market, it tends to return to return to that low more often than not, according to data from Bespoke Investment Group.

Bespoke looked at the last 25 bear markets, dating back to 1928. In those instances, the S&P has dropped to a lower point than the initial low 60 percent of the time.

But the effect may be washing out. Of the 11 bear markets from 1928 through 1940, nine of them saw the S&P 500 make a lower low. Since 1940, more often than not, the bear markets have not set a new low after the initial drop.

April in the Rearview Mirror

After all the turmoil in the markets, April ended up being the best month for the major indexes in decades. The S&P 500 closed up 12.68 percent last month and the Dow closed up 11.08 percent. For both of them, it was their best month since January 1987. 

In addition, it was the best April for both indexes since 1938, according to Dow Jones Market Data. The Nasdaq Composite’s rise of 15.5 percent marked its best April ever.

That's the good news. The bad news is that the S&P 500 is down 9.85 percent this year, while the Dow is down 14.69 percent this year. Both indexes are on pace for their worst year since 1978.

Where Those Stimulus Payments Are

If you've been wondering why your $1,200 stimulus payment hasn't shown up yet, it might be because you make too much money. The CARES Act authorized $1,200 payments to individuals making below $75,000 and $2,400 to married couples earning under $150,000.

The payments decline by $5 for every $100 above the $75,000 or $150,000 threshold. Anyone making over $99,000, then, doesn’t qualify, nor do couples making over $198,000.

But don't give up hope. People who exceed the income limit might still have a chance at the money — next year. That’s because the stimulus payments are technically an advance credit for next year’s tax season. The credit is just being paid right now.

First Quarter GDP

This is not too much of a surprise: The American economy shrank at a 4.8 percent annualized pace in the first quarter, according to numbers out from the Commerce Department this morning. The downturn was led by the steepest drop in consumer spending since 1980 and the fastest decline in business investment in almost 11 years.

The first quarter marked the first negative GDP reading since the 1.1 percent decline in the first quarter of 2014. It was the worst overall quarter since the 8.4 percent plunge in the fourth quarter of 2008 during the worst of the financial crisis. And remember, it wasn't until March that the shutdowns began.

Consumer spending, which makes up 67 percent of total GDP, plunged 7.6 percent in the quarter as all nonessential stores were closed and the cornerstone of the U.S. economy was taken almost completely out of commission. Durable goods spending tumbled 16.1 percent while expenditures on services were down 10.2 percent.

Retirement Still on Track for Most Americans

Even in the midst of the coronavirus pandemic, many Americans said their retirement expectations are the same as they were last year, according to a new Gallup poll of Americans’ retirement visions. The average expected retirement age was 66 years old — up just one year from 65 in 2018.

How savers plan to fund that retirement is mixed. Some 80 percent of non-retired Americans say they expect to lean on their savings in a 401(k) plan, individual retirement account or other retirement-specific account. Slightly less than three-quarters said they’d use other savings, such as in a CD. Seven in 10 people said they’ll work part time in retirement.

Gallup also asked how much they will need these sources of income. More than half (53 percent) of people said their retirement savings would be a major source of income in their later years, and 27 percent said a minor source.

Retirement Accounts Are Still Growing

Some good news regarding people keeping their eye on the long term: Despite huge market swings in the first quarter, the majority of retirement savers continued to add to their nest eggs. The average 401(k) contribution rate remained steady at 8.9 percent, consistent with the previous quarter, according to new data from Fidelity Investments.

Not only that, 15 percent of 401(k) savers actually increased their contribution rate in the first quarter. The average employer contribution also held steady at 4.7 percent, up from 4.6 percent in the previous quarter and consistent with 4.7 percent in the 2019 first quarter.

In other types of retirement accounts, the average amount investors contributed to an IRA increased by 10 percent year over year to $3,330, up 10 percent over the average contribution amount in last year’s fourth quarter. Contributions to 403(b)/tax-exempt accounts also increased, to 6.9 percent from 5.6 percent in the fourth quarter and 5.4 percent a year ago.

The Changing World of the Office

How will the corporate world be changed by coronavirus? Nothing will be the same when America goes back to the office, says Carol Bartz, who led the software company Autodesk for a decade. One of those changes will be the floor plan.

“I think office space is going to change,” she told the website MarketWatch. "We will go back to putting shields between people." She claimed that this will probably be the first time offices will have to be designed around health reasons.

"You will not sit there in that big open space," Bartz said. "I think people are going to want protection, plexiglass or whatever. There will also be more teleconferencing, absolutely less flying, you will teleconference with customers - they don’t want to see you in person and you don’t want to see them."

Consumers Are (Slightly) More Optimistic

The confidence Americans felt in the economy sank at record speed in the past month as the devastation from the coronavirus spread, but they are apparently more hopeful now that the worst of the damage has been done. Those are the findings in a weekly survey of consumer confidence conducted by an organization called Morning Consult.

Not surprisingly, the Morning Consult index had been in a freefall the past few weeks, diving to a record low of 81.23 in the first week of April, That followed a record high of 115.7 in February.

Since then, it has edged up a few points. Why is that? Americans are still extremely worried about the economy right now. What’s nudged confidence higher is the increasing belief that the economy will be slightly better off in the long term, 12 months from now.

Another Rough Day on Wall Street

After a couple of weeks when the market looked stronger, U.S. stocks suffered significant drops yesterday. The S&P 500 Index sank 3.1 percent and is now 19.2 percent below its record closing level set February 19. This was its worst decline since it fell 4.4 percent on April 1.

The technology sector led the market lower, with the sector as a whole dropping 4.1 percent on the day. In the S&P as a whole, 470 of its 500 stocks declined. All but one of the Dow's 30 components ended the day down, with only Travelers holding steady on the day.

Surprisingly, the energy sector was not especially hard hit. It was down 1.7 percent on the day, but that was still the third-best performance among the S&P's 11 sectors.

What Happened to Oil Prices?

How did crude futures drop into negative territory yesterday, trading at one point at minus $14.04 per barrel? Basically because nobody's buying it right now. The only buyers of oil futures are entities that want to physically take delivery of it, like a refinery or an airline. But demand has dropped and storage tanks are filled, so they don’t need it.

One thing that tripped the switch was a report from the International Energy Agency, which warned that demand in April could be 29 million barrels per day lower than a year ago, hitting a level last seen in 1995. And with places to store the crude quickly filling, some experts feel that prices could stay low for a lot longer.

But it looks like the negative price was a one-day anomaly. West Texas Intermediate crude futures for May delivery turned positive in overnight trading, with the May contract trading at $1.17 per barrel by the evening.

What to Expect From Earnings Season

First quarter earnings began to roll in during the past week, starting with the major banks. So far, based on actual reports and forecasts, first quarter earnings are expected to be down 14.5 percent, which would be the worst quarter since earnings declined by more than 15 percent in the third quarter of 2009.

Things don't look to be getting better any time soon. In the second quarter, the stock research firm Refinitiv expects a much sharper 27.3 percent decline.

IBM, Netflix, Coca-Cola and dozens of others are expected to report earnings this week. But at this point and for the time being, the market is more likely to trade on virus headlines and news about reopening the economy than about earnings reports.

A Glimmer of Good News

It was a good day on Wall Street yesterday, following a report from health-care media site Stat News that indicated promising results for a drug used to treat COVID-19. Buoyed by the news, the S&P 500 rose by 1.6 percent on the day.

University of Chicago Medicine researchers saw “rapid recoveries” in 125 patients suffering from COVID-19 who were taking Gilead Sciences’s experimental drug remdesivir as part of a clinical trial. As a result, Gilead's share price jumped nearly 8 percent on the day.

But be warned that we are still a long way from a treatment. A statement from the University of Chicago Medicine said that “drawing any conclusions at this point is premature and scientifically unsound.”

March's Economic Decline

New data out this morning showed the hit to the economy from the coronavirus was even swifter and deeper in the early weeks of the shutdown than expected. Consumer and manufacturing data for the month of March showed record declines in some areas.

March retail sales fell 8.7 percent, a record drop, with the only sign of activity at grocery and beverage stores, which saw sales grow by 25.6 percent. The consumer accounts for 70 percent of the economy. Meanwhile, New York regional manufacturing activity hit an all-time low, declining 78.2 percent.

If there's a bright spot, it's that some sales categories actually improved in March. They include building materials, up 1.3 percent, and health and personal care, which climbed 4.3 percent.

Gas Bottoms Out

The national average for a gallon of gas — $1.883 as of Friday, according to the latest data from AAA — is the cheapest it's been in more than four years. In just the last month, the national average per gallon has dropped 48 cents, and current prices are 32 percent below what you paid a year ago.

Here in Tennessee, the average price of a gallon of gas currently sits at $1.77. That's 45 cents less than one month ago and nearly 71 cents less than one year ago. A BP station in London, Kentucky, just north of Knoxville, is apparently the first in the nation to drop its gas prices to 99 cents per gallon.

Relatedly, demand for gas is at its lowest level since 1968, according to  Oil Price Information Services. Data from the Energy Information Administration shows that for the week ending April 3, gas usage had fallen 48 percent year-over-year, to 5.065 million barrels per day.

A Bit of Recovery for the Markets

The markets are closed today for Good Friday, but they don't need an extra day to post big gains for the week. The S&P 500 surged 12.1 percent on the week, marking  its biggest one-week gain since 1974, when it rallied more than 14 percent.

Similarly, the Nasdaq had its best week since 2009, jumping 10.6 percent. The Dow rose more than 12 percent for one of its biggest weekly gains on record.

We are probably in for more economic difficulty in the weeks ahead, but this was a nice breather. And we've still got a long way to go: The Dow is up more than 27 percent from its March closing low, but still down 16.9 percent on the year.

A Nation on the Couch

What's everyone doing during the quarantine? They're watching television - on March 31, Nielsen said that streaming viewership jumped 22 percent during the week of March 16 versus the prior week. And that's paying off for some streaming companies.

Disney announced yesterday that Disney+, its new video service, now has more than 50 million subscribers. That’s almost twice as many as Disney reported on February 4, when it said that Disney+ reached 26.5 million subscribers during the first quarter.

Netflix has more than 167 million paying subscribers globally, 60.4 million of them in the U.S. Roughly 34.3 million of those people watched the Netflix series Tiger King: Murder, Mayhem and Madness in the first 10 days after its release on March 20.

This Volatile Market

How volatile has the market been lately? Over the last five weeks, the S&P 500's average absolute daily percentage change has been  plus or minus 4.8 percent.  That's higher than we saw at the height of the financial crisis or after the 1987 crash.  The only time the S&P's average daily move over a five-week period was greater was after the Crash of 1929.

The S&P 500 calmed down a little yesterday, dropping by just 0.16 percent and breaking a string of 12 straight days of moving up or down 1 percent or more. Those 12 days were a longer streak than anything seen during the financial crisis.

What makes this current streak even more notable is that it was almost the second 13-day streak of 1 percent moves in the last 27 trading days. From March 2 through  18, the S&P 500 went 13 straight days of moving up or down 1 percent.  It broke that streak in March 19 by rallying just 0.47 percent.  So in the last five weeks the S&P 500 has seen a 1 percent move 23 times in 25 trading days.

Retail and Leisure's Comeback

The Wall Street roller coaster soared upward yesterday, with the S&P 500 Index adding 7 percent. It's now 21.3 percent below its peak closing high of February 19 and close to the level where it began 2019.

Some of the retail and leisure stocks that have been hit hardest during the crisis enjoyed double-digit increases yesterday, led by PVH, which owns such brands as Van Heusen, Tommy Hilfiger, Calvin Klein and IZOD. Monday's S&P's strongest performers:

• PVH Corp., up 28.1 percent
• Capri Holdings, up 25.9 percent
• Nordstrom, up 24.1 percent
• Kohl's, up 22.9 percent
• MGM Resorts International, up 22.0 percent
• Royal Caribbean Cruises, up 21.4 percent
• Ulta Beauty, up 20.4 percent
• Carnival, up 20.3 percent
• Marriott International, up 19.5 percent
• Boeing, up 19.5 percent
• Norwegian Cruise Line, up 18.3 percent

What's Going On with Oil Prices

West Texas Intermediate oil prices, the benchmark for the U.S., ended last week 31.8 percent higher, posting the largest one-week percentage rise on record. Despite that surge, crude is still down nearly 40 percent in the last month on the heels of demand destruction from the coronavirus outbreak, and the price war between Saudi Arabia and Russia.

If you still have a reason to drive, it's gotten a lot cheaper lately. Tennessee's average gasoline price currently sits at $1.77 a gallon. That's 45 cents less than one month ago and nearly 71 cents less than one year ago.

OPEC and its allies, including Russia, will convene this week in an attempt to forge a truce in the price war. Most observers argue that some sort of deal will most likely be reached, since it is in producers’ best interest to have higher oil prices.

March Jobs Report

The American economy lost 701,000 jobs in March, according to Labor Department numbers released this morning. It was the first decline in payrolls since September 2010 and came close to the May 2009 financial crisis peak of 800,000. The unemployment rate rose to 4.4 percent, up from 3.5 percent, to reach its highest level since August 2017.

As bad as these numbers are, there's good reason to think they're understated.  The Bureau of Labor Statistics used as its reference period the week ending March 12, which was when the nation began shutting down. The weekly initial jobless claims reports have shown 10 million new filings for unemployment insurance over the past two weeks.

Some two-thirds of March's drop came in the hospitality industry, particularly bars and restaurants forced to close during the economic shutdown. That sector suffered 459,000 job losses, with 417,000 coming from food and drinking establishments. The Bureau of Labor Statistics noted that the drop nearly wiped out all of the gains from the past two years.

Americans Worried, but Holding Fast

The stock market crash has left Americans wondering whether worse is yet to come, Allianz Life found in its latest quarterly market perceptions study. Sixty-three percent of participants in the study expressed concerns about a recession, up from 43 percent in the fourth quarter, and 57 percent thought that the market had not bottomed out.

But most of them are holding fast. Notwithstanding their anxiety over market swings, 52 percent of Americans said now was a good time to stay neutral and not take any action because of market conditions.

Americans in the survey also appeared optimistic that they would eventually be able to recover their retirement savings. Seven in 10 respondents believed that they would have time to rebuild their retirement nest eggs even if the market continued to fall.

First Quarter Is Finally Over

Yesterday, the final day of March and of the first quarter, the Dow Jones Industrial Average fell by 1.8 percent. Overall, the index was down 23.2 percent for the first quarter, That was its biggest decline since the fourth quarter of 1987, the year that Black Monday occurred, on October 19.

The S&P 500 Index ended with a first-quarter decline of 20 percent, its biggest quarterly loss since 2008. It was also the S&P's worst first quarter ever. The Nasdaq suffered a first-quarter decline of 14.2 percent.

The only Dow stock that rose during the first quarter? Microsoft. It closed at $157.71 yesterday, up exactly one penny from its $157.70 close on December 31.

China on the Comeback

China  said yesterday that its official Purchasing Manager’s Index for March was 52.0, beating expectations for an economy hit hard by the coronavirus outbreak. PMI readings above 50 indicate expansion, while those below that level signal contraction.

In February, China's official PMI had hit a record low of 35.7. While there's reason to suspect the accuracy of these numbers, this is a positive sign for how quickly an economy can rebound from the pandemic.

Earlier this year, manufacturing activity slowed dramatically in China as the government instituted large-scale lockdowns and quarantines. This week, China’s Ministry of Industry and Information Technology said that as of March 28, the resumption-of-work rate for larger industrial enterprises was 98.6 percent, and the return of workers stood at 89.9 percent.

A Week of Recovery

Here's a mark you probably weren't expecting to be set: The Dow Jones Industrial Average just notched its best weekly gain since 1938, despite falling by 4.1 percent in Friday's trading. For the week, the Dow booked a gain of 12.8 percent, its strongest weekly performance in 82 years.

The S&P 500 finished down 3.4 percent on Friday, but still had a weekly gain of 10.3 percent. The Nasdaq Composite fell 3.8 percent on Friday, but on the week it’s up 9.1 percent. For both of those indexes, it was their best week since March 2009, when the markets bottomed out after the financial meltdown.

The Dow was aided by a comeback for the ages from blue-chip component Boeing, which surged 70.5 percent for the week. That was its best weekly gain ever.

Three Million Jobless Claims

A sobering economic number is out this morning: Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the Labor Department reporting a surge to 3.28 million new filers.

That number shatters the Great Recession peak of 665,000 from March 2009, as well as the all-time mark of 695,000 in October 1982. The number for the previous week, which reflected the period before the worst of the coronavirus hit, was 282,000.

But the news isn't all bad. The House is expected to pass a $2 trillion stimulus bill, already approved by the Senate, tomorrow morning, which should help ameliorate the job losses. Putting everything together, the market is happy about these moves, with stocks moving higher in early trading this morning.

The Market Bounces Back

Finally, we had some good news on Wall Street yesterday. The Dow Jones Industrial Average soared 11.4 percent, for its best one-day percentage performance since 1933. The S&P 500 Index was up 9.4 percent, while the Nasdaq Composite added 8.1 percent. The rally seemed to be a response to Congress nearing a conclusion on its stimulus bill.

More than 300 stocks in the S&P 500 gained at least 10 percent on the day. Five of them gained more than 35 percent, including:

• Norwegian Cruise Line, up 42.3 percent
• L Brands, up 39.0 percent
• DXC Technology, up 38.2 percent
• American Airlines, up 35.8 percent
• Alliance Data Systems, up 35.4 percent
• MGM Resorts International, up 33.2 percent

The Toll of the Virus

A majority of Americans have already seen their finances affected by the coronavirus pandemic, according to a new survey by LendingTree. Some 63 percent of the respondents said their finances had already been affected in some way by the coronavirus, with 27 percent reporting stock market losses and 21 percent saying they had spent more money on supplies than they could afford.

Forty percent of survey participants said their paycheck had already been hit by the coronavirus’ spread. Another 35 percent had had their hours at work reduced or eliminated, and 5 percent had lost tips or commissions.

Looking ahead, 21 percent of all Americans in the survey and 28 percent of those with children under 18 expect their finances to be severely affected by the pandemic. Another 35 percent said their finances would be somewhat affected. Seventeen percent are worried about their ability to pay bills, and 10 percent had lost money on nonrefundable travel plans.

The Fed's New Action

Saying “aggressive action” was needed to combat the coronavirus pandemic, the Federal Reserve announced this morning that it would purchase an unlimited amount of Treasury bonds and securities tied to home and business mortgages. The goal is to prop up the economy and ward off a credit crunch.

The Fed said it would buy assets “in the amounts needed” to support smooth market functioning and effective transmission of monetary policy. It had previously set a $700 billion limit for its asset purchase programs.

In addition, the Fed announced several new lending programs worth $300 billion to support all corners of the financial markets. The market apparently was very happy with these moves, as Dow futures accelerated after the announcement was made.

Are Stocks Settling Down?

We had a rare occurrence on Wall Stret yesterday: A relatively normal day for the stock market. The Dow Jones industrial average swung more than 1,200 points from its low to its high point, but in the end, it finished up just under 1 percent, or 188 points. It was the first time since March 6 that the index closed within 1,000 points from where it opened.

The S&P 500 closed up 0.5 percent, also by far its most modest finish since the start of the month. The Nasdaq Composite, which was the best performer of the day, ended up 2.3 percent.

Leading the way yesterday was the energy sector, which gained about 5 percent on the day. It was bolstered by the fact that U.S. oil prices spiked by 24 percent, marking a record one-day percentage gain.

New Jobless Claims, Out This Morning

We're starting to see the first economic indicators since the country went on lockdown over the coronoavirus. This morning, the Labor Department's new report on unemployment claims filed last week jumped to 281,000 from 211,000 the week earlier. It was the highest number since September 2, 2017.

But more than the raw number, it's the rate of increase that's sobering. The 33 percent jump in weekly claims is the biggest ever one-week increase, aside from temporary disruptions from hurricanes and other natural disasters. It tops the one-week 14 percent jump during the 2008 financial crisis.

Companies are just starting to announce coronavirus-related layoffs, so the real damage probably won’t start showing through until next week’s count, which will entail the period through this Saturday. It's very possible that the economy has already entered recession.

Loosening the Tax Deadlines

A small bit of relief: In case you missed it, Treasury Secretary Steve Mnuchin announced yesterday that individuals would be allowed to defer up to $1 million in tax payments for up to 90 days. The primary federal filing deadline remains April 15.

Of course, many of us here in Tennessee have already been given some relief as far as federal taxes go. Victims of the recent tornadoes, including taxpayers in Davidson, Putnam and Williams counties, will have until July 15, 2020, to file various individual and business tax returns and make tax payments,

Among other things, this also means that affected taxpayers will have until July 15 to make 2019 IRA contributions. The new deadline also applies to quarterly estimated income tax payments due on April 15 and June 15 as well as the quarterly payroll and excise tax returns normally due on April 30.

Yesterday's Worst Performers

The S&P 500 Index  tumbled another 12 percent yesterday, with 491 of its stocks showing declines. It was the third-worst trading day ever for the S&P, as well as for the Dow; the Nasdaq, which lost 12.3 percent, had its worst-ever one-day decline.

These S&P stocks lost more than a quarter of their value yesterday:

• MGM Resorts International (Casinos/Gaming), down 33.61 percent 
• Apache Corp. (Oil & Gas), down 32.34 percent
• Capri Holdings Ltd (Apparel/Footwear Retail), down 30.65 percent
• Tapestry (Apparel/Footwear Retail), down 29.26 percent
• Ventas (Real Estate Investment Trusts), down 28.59 percent
• DXC Technology (Data Processing Services), down 28.33 percent
• L Brands (Apparel/Footwear Retail), down 27.73 percent
• Noble Energy (Oil & Gas Production), down 27.26 percent
• Alliance Data Systems (Data Processing Services), down 27.06 percent
• Discover Financial Services (Regional Banks), down 26.83 percent
• Simon Property Group (Real Estate Investment Trusts), down 26.71 percent
• Synchrony Financial (Finance/Rental/Leasing), down 26.02 percent
• LyondellBasell Industries (Chemicals), down 25.49 percent

The Fed's Latest Suprise

The Federal Reserve cut interest rates to essentially zero yesterday and launched a massive $700 billion quantitative easing program to shelter the economy as it teeters on the brink of recession. The new fed funds rate will now be targeted at 0 percent to 0.25 percent, down from a target range of 1 percent to 1.25 percent.

In addition to rate cuts, the Fed also said it would purchase another $700 billion worth of Treasury bonds and mortgage-backed securities. It also struck a deal with five other foreign central banks, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to lower their rates on currency swaps to keep the financial markets functioning normally.

The central bank pre-empted a Federal Open Market Committee meeting scheduled for Tuesday and Wednesday, with a policy announcement that was due on Wednesday. This was less than two weeks after the Fed had already made an impromptu cut of 0.5 percent.

End of a Long Week

The S&P 500 Index dropped 9.5 percent yesterday in its worst day in more than three decades. It joined the Dow in a bear market, as it's now more than 20 percent from its recent peak.

The Dow also suffered its worst point drop ever and the biggest percentage decline since 1987.
Things got so bad that for the second time this week, a market-wide circuit breaker was triggered to prevent stocks from a free-fall. Trading was halted for 15 minutes shortly after the market opened, following an initial 7 percent drop in the S&P 500.

The Dow is off 18.03 percent so far this week. It wouldn't take much of a drop today to book the worst weekly decline for the index — which turns 124 years old on May 26 — if it surpasses the 18.15 percent drop in the week ended October 10, 2008, at the height of the financial crisis that ushered in the Great Recession.

The Dow in a Bear

After another rough day for the markets, the Dow Jones Industrial Average has officially entered a bear market, defined as a drop of 20 percent from recent highs. The S&P and the Nasdaq are still hanging on, just barely out of bear territory.

The Dow is currently off 20.3 percent from its February 12 record, after falling by 5.9 percent yesterday. The S&P 500 and the Nasdaq are both down 19 percent from their February 19 peaks.

How long do we expect the markets to be down? On average, a bear market for the Dow lasts 206 trading days, according to data from Dow Jones Market Data. The average bear period for the S&P 500 is about 146 days.

A Bounceback Day

Following historic drops for all three major indexes on Monday, they all gained roughly half of that back yesterday. The S&P 500 and the Dow Jones Industrial Average each rose 4.9 percent, while the Nasdaq Composite was up 5 percent. In other economic news:

• Airline shares took off: American Airlines shares closed about 15 percent higher, while Delta shares jumped 4.5 percent, and Southwest shares were up more than 4 percent.
• After the 10-year and 30-year Treasury fell to all-time lows on Monday, the 10-year yield bounced back 30 basis points to 0.80 percent yesterday, while the 30-year yield was up 29 basis points to 1.31 percent.
• After losing 25 percent Monday, their worst day since the 1991 Gulf War, crude oil prices rebounded, with West Texas Intermediate crude rising 10.4 percent.

How Likely Is a Rebound?

Yesterday was another difficult day on Wall Street, with the S&P 500 Index dropping by a whopping 7.6 percent - its worst day since the 2008 market meltdown. Pent-up anxiety over the weekend may have contributed to another Black Monday.

What does this mean for the future? Data compiled by Bespoke Investment Group strategists show that the S&P 500 has put in declines of 5 percent or worse on 10 other Mondays since 1952, with today’s drop representing the 11th time.

The good news, however, is that on average, the S&P 500 has returned 12.75 percent in the six months after the daily 5 percent drop. Gains are also higher in the following day, up 4.2 percent on average, as well the next week and month, with gains of 5.1 percent and 3.2 percent, respectively.

Oil Prices Dropping, and Dropping

One bit of collateral damage from the coronavirus and the recent drop in the stock markets: Oil prices are falling through the floor, and look to be headed even lower. U.S. oil benchmarks plummeted to multiyear lows on Friday, with West Texas Intermediate sinking more than 10 percent to $41.28, its lowest level since 2016.

Oil prices are now down 30 percent for the year, and could fall further given reports of a possible increase in production by Saudi Arabia. OPEC and non-OPEC producers are preparing for an all-out price war, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand. 

Consumers could see gasoline prices drop below $2 per gallon in upcoming days, according to some economic pundits. The decline in crude oil prices could add as much as 0.50 percent to U.S. GDP if the drop is sustained.

February's Jobs Report

February was another huge month for the jobs market, the Labor Department reported this morning: The U.S. economy added 273,000 new jobs during the month. The headline unemployment rate ticked back down to 3.5 percent, matching its lowest level in more than 50 years.

There was more good news for the jobs market: the previous two months’ estimates were revised higher by a total of 85,000. December moved up from 147,000 to 184,000, while January went from 225,000 to 273,000. Those revisions brought the three-month average up to a robust 243,000; the average monthly gain in 2019 was 178,000.

Health care and social assistance led the way in February with 57,000 new jobs. Food services and drinking places both added 53,000 while government employment grew by 45,000 due to Census hiring and state government education. Construction added 42,000 thanks to continued mild weather, while professional and technical services added 32,000 and finance added 26,000, part of a 160,000 gain over the past 12 months.

How Investors Are Reacting to Coronavirus

Worried about what the coronavirus might be doing to your financial plans? According to a new survey from Retirement Income Certified Professional financial advisors, the response from most investors is to stay the course.

More than 65 percent of the 245 RICP advisors surveyed indicated their clients had become more likely to reach out to them due to recent market volatility. But more than 60 percent of advisors reported that none of their clients had made changes to their plans as a result of recent market performance.

Still, many clients have become more concerned about their retirement savings as a result of the coronavirus. Half of the surveyed clients indicated they were more concerned about retirement security this year than they were in 2019.

The Fed's Surprise

The Federal Reserve’s surprise decision to slash interest rates yesterday by half a point was the biggest one-day move since 2008, and it came on a day when the Fed wasn’t even supposed to meet. The Fed has only cut rates by a half-point or more four other times in this century:

October 8, 2008: 0.5 points
The Fed struggled to contain the market chaos that followed the implosion of Lehman Brothers a few weeks earlier.

January 22, 2008: 0.75 points
A week ahead of their regularly scheduled meeting, the Fed announced its deepest rate cut in 24 years, in an ultimately unsuccessful attempt to head off the coming recession.

September 17, 2001: 0.5 points
The Fed cut rates just before markets reopened in the wake of the September 11 terrorist attacks, in an attempt to bolster investor confidence.

April 18, 2001: 0.5 points
A year after the dot-com bubble burst, the Fed tried to hold off another coming recession, but it turned out the economy had already begun contracting.

Stocks Bounce Back

After the disaster of last week, yesterday all three major indexes came back strong. The Dow Jones Industrial Average rose 1,293.96 points, or 5.1 percent — its largest one-day percentage rise since March 23, 2009. The S&P 500 rose 136.01 points, or 4.6 percent, while the Nasdaq Composite rose 384.80 points, or 4.5 percent, marking the biggest one-day percentage gain for both those indexes since December 26, 2018. 

The biggest winners for the day among individual S&P stocks:

1. Costco, up 10.0 percent
2. Apple, up 9.3 percent
3. S&P Global, up 9.2 percent
4. Crown Castle International, up 9.0 percent
5. AES Corporation, up 8.9 percent
6. Cincinnati Financial Corp., up 8.7 percent
7. Gilead Sciences, up 8.7 percent
8. Digital Realty Trust, up 8.6 percent
9. Eversource Energy, up 8.3 percent
10. CVS, up 8.2 percent

Watching for the Bear

U.S. stocks entered a market correction — defined as a 10 percent drop from a recent peak — last Thursday. For the S&P 500 the drop into a correction from an all-time high in just six trading days earlier was the fastest on record, according to Dow Jones Market Data.

The next step would be a bear market, which is defined as a 20 percent drop from recent highs. As of the end of last week, the S&P 500 was down 12.8 percent from its record close, while the Dow finished 14 percent below its all-time closing high. The Nasdaq ended the week 12.8 percent below its high.

It was the biggest weekly drop for all three major equity benchmarks since the depths of the financial crisis in October 2008. Even if next week isn't as bad as last week was, we might still be entering bear territory.

End of a Rough Week

It was another rough day on Wall Street yesterday: The Dow Jones Industrial Average fell 4.4 percent, the S&P 500 fell 4.4 percent, while the Nasdaq Composite dropped 4.6 percent. The Dow had its worst day since February 2018 while the Nasdaq and S&P 500 posted their biggest one-day losses since August 2011.

It was also the Dow’s biggest one-day point decline in history, surpassing Monday’s 1,031-point drop. The Dow and S&P 500 are now on pace for their worst weekly performance since 2008. Through yesterday’s close, the Dow was down more than 11 percent week to date while the S&P 500 had lost 10.8 percent.

Yesterday’s losses put the Dow, S&P 500 and Nasdaq in correction territory, which is defined as down more than 10 percent from a recent high. The S&P 500 and Nasdaq set record highs just last week. It took the Dow just 10 sessions to tumble from its all-time high into a correction.

Bonds at Record Lows

While the stock markets were having their third rough day in a row yesterday, there was also some significant news about the bond market. The 10-year U.S. Treasury bond yield fell to a record low yesterday, amid heightened fears about the fast-spreading coronavirus and its effect on the global economy.

The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of its price, fell 4 basis points to 1.302 percent. That's just a notch below its last record low of 1.307 percent, reached last Tuesday.

Why is this happening? Investors sought the safety of U.S. government debt  on fears of what the  coronavirus will do to global economic growth. That moved them away from riskier assets, like stocks, and toward the safe haven of the U.S. Treasury.

Home Prices Growing Strong

Housing is looking strong: In the fourth quarter of 2019, home prices rose 5.1 percent on an annual basis, the Federal Housing Finance Agency reported yesterday. Between November and December, its monthly home price index increased 0.6 percent.

That's not the only good news for the housing market. The S&P CoreLogic Case-Shiller 20-city price index posted a 2.9 percent year-over-year gain in December, up from 2.5 percent the previous month. On a monthly basis, the index increased 0.4 percent between November and December.

The Case-Shiller index has shown the Southeast region, which includes Tennessee, to be leading the rest of the country in home price growth. For individual cities, Phoenix posted the largest price increase, with a 6.5 percent year-over-year gain. That was followed by Charlotte’s 5.3 percent increase and Tampa’s 5.2 percent increase.

What's Next After Yesterday's Market Slide

Yesterday was a bloodbath for the market, with the Dow Jones Industrial Average dropping by 1000 points for only the third time in its history. All the major indices slid more than 3 percent, but if history is any indication, today might prove to be a different story entirely.

According to Bespoke Investment Group, yesterday was the 19th time the S&P 500 has shed more than 2 percent on a Monday, going back to March 2009. In the prior instances, the index has, on average, returned 1.02 percent the next day.

Bespoke found that in 17 out of the 18 prior instances the S&P 500 also had a positive return over the subsequent week, with an average gain of 3.16 percent. Over the next month, there was an average gain of 6.08 percent.

Fears of the Virus

The forecasting firm IHS Markit said its indexes for manufacturers and service-oriented firms both declined in February, according to a “flash” or preliminary reading. Its services index turned negative for the first time since 2015.

The reason? Most people fear it's because of the coronavirus. The coronavirus scare is already hurting companies in the tourism and travel industries that generate lots of business from Chinese customers. Apple, for instance, warned that its sales might fall short of forecasts because it might not be able to produce and ship iPhones on schedule.

One bright spot: Most executives who were polled for IHS Markit said they think the current weakness is temporary. They expect business to bounce back before the end of the year.

What Small Business Is Seeing

Small business sentiment is on the rise to kick off 2020, with confidence nearing all-time highs,  according to the CNBC/SurveyMonkey Small Business Confidence Index. The survey reported a sharp turnaround from the lows seen last summer when trade turmoil weighed on Main Street’s outlook.

In the next 12 months, about one-fifth of small business owners expect a negative impact from changes in trade policy, while 26 percent expect a positive effect — more than half say the changes will have no impact. Of the small business owners that said either deal would impact their operations directly, most came from the retail sector.

Generally, business owners are feeling more positive about business, with 56 percent saying conditions are good and only 7 percent saying the opposite. Recession fears have also calmed down somewhat, with 49 percent of businesses saying a recession is likely in the next year, down from 53 percent this same quarter in 2019.

State of the Air

The Department of Transportation's 2019 Air Travel Consumer Report came out yesterday, reporting that 79 percent of domestic flights last year arrived within 15 minutes of the airline’s schedule — the government’s definition of being on time. That was down slightly from 79.2 percent in 2018.

Hawaiian Airlines took home the prize for being the nation’s most punctual airline for the 16th straight year. Hawaiian scored an 87.7 percent on-time mark, followed by Delta Air Lines at 83.5 percent. After that, from best to worst, it was Alaska Airlines, Southwest, Spirit, Allegiant, American, United, JetBlue and discount carrier Frontier Airlines, last at 73.1 percent.

A total of 302 domestic flights were stuck on the ground for three hours or longer, a 50 percent increase over 2018. Cancellations rose to 1.9 percent, up from 1.7 percent in 2018. Hawaiian had the lowest cancellation rate, while the highest rates belonged to American, Southwest and United.

Why Do Americans Save So Much?

U.S. household wealth compared to income is near a record high. Unemployment is near a record low. So why is the personal savings rate still so high? In the fourth quarter, savings as a percent of disposable income was 7.7 percent, more or less the post-Recession average.

Goldman Sachs examined this question, and found that the top 20 percent of Americans by income save 12 percent of their disposable income. Households in the 60th to 80 percentile of income distribution — in 2018, households making between $79,542 and $130,000, according to the Census Bureau — have boosted their savings over the last three years.

The reason? Tightened credit standards led to less borrowing. The Goldman forecast is for the savings rate to fall by 2 percentage points through 2022. If the savings rate reverts back to normal, there should by definition be more spending - which is good news for the U.S. economy.

Trouble in Japan

Sobering news from Japan: The world's third-largest economy shrank 1.6 percent in the fourth quarter of 2019  - an annualized percentage drop of 6.3 percent  -  according to a government estimate released yesterday. The decline from the third quarter is the country's biggest contraction since 2014.

Japan absorbed a difficult sales tax hike and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit the country last fall. The spread of the coronavirus now threatens to stamp out hopes for a recovery in the first quarter.

Analysts say that tourism to Japan, particularly visitors from China, could be hard-hit if the virus is widespread there. New government figures also showed household spending deteriorating, suggesting that the economy already contracted more than first thought at the end of last year.

Record Retirement Savings

Average 401(k) and IRA balances have hit record levels, according to a new study out from Fidelity. The average 401(k) balance rose to $112,300 last year, a 7 percent increase from last quarter’s balance of $105,200. The average IRA balance was a new high of $115,400.

It’s not just because the markets are up — employees are saving more. One-third of plan participants increased the amount they were saving by an average of 3 percent. And a record 35 percent of employers automatically enrolled new workers in their 401(k) plan.

The study also found a record 441,000 IRA or 401(k) accounts Fidelity manages had balances of $1 million. Still, 401(k) and IRA millionaires are relatively rare: The number of retirement millionaires represents 1.6 percent of the 27.2 million IRA and 401(k) accounts managed by Fidelity.

The Coronavirus and Oil Prices

One possible side effect from the coronavirus seeming to come under control: oil prices are rising. Oil prices rose over 3 percent yesterday as China reported its lowest daily number of new coronavirus cases since late January. That stoked hopes that fuel demand in the world’s second-largest oil-consuming economy may begin to recover.

Brent futures, the international benchmark, gained $1.78, to $55.79 per barrel yesterday, while U.S. West Texas Intermediate crude gained $1.23 to $51.17. Those were the highest settles for both futures since January.

The demand concerns from the outbreak had pushed Brent and WTI to their lowest level in 13 months on Monday. at that point, both benchmarks are down more than 20 percent from the highs they had reached in January.

The State of America's Debt

Household debt surged in 2019, marking the biggest annual increase since just before the financial crisis, the New York Federal Reserve reported yesterday. Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time. The last time the growth was that large was 2007, when household debt rose by just over $1 trillion.

The growth was driven mainly by a large increase in mortgage debt balances, which rose $433 billion. That was the largest gain for that figure since 2007. Housing debt now accounts for $9.95 billion of the total balance.

Balances for auto loans and credit cards both increased by $57 billion for the year. Credit cards have surpassed student loans as the most common form of first credit among young borrowers, after several years when student loans were higher.

Retirees' Biggest Fears

Pre-retirees are nearly as anxious about what the future holds as they are about the present, according to a brand-new study by Charles Schwab. Sixty-five percent of study participants within five years of retirement reported feeling overwhelmed by saving enough now for retirement, and 52 percent said they were overwhelmed by how they would ultimately manage their different income sources once they were retired.

The survey found that pre-retirees felt particularly anxious about how they would manage their income and spending needs in retirement once they stopped receiving a regular salary, including:

• 72 percent worried about running out of money
• 64 percent were overwhelmed by not being able to maintain their current lifestyle or quality of life
• 60 percent worried about not getting a regular paycheck
• 57 percent were overwhelmed by determining how much they could spend

What's Disrupting Americans' Economic Lives

Education spending — largely on student loan debt — has become the chief financial disruptor among Americans, even more so than loss of employment or having to take a lower-paying job, according to a new Harris Poll for TD Ameritrade. In fact, education spending is the only financial disruptor that experienced growth in the past five years.

Here’s how financial disruption causes stacked up in the new survey:

• Education for self and/or other dependent family members: 16 percent of respondents
• Loss of employment/lower paid job: 15 percent
• Supporting others financially: 13 percent
• Poor investment/business performance: 10 percent
• Accident/illness/disability/unable to work: 10 percent
• Divorce/separation/widowed: 10 percent
• Planned family: 9 percent
• Planned home: 8 percent

January's Jobs Report

The U.S. economy added a robust 225,000 jobs in January, with warmer weather during the month helping boost hiring even in a persistently tight labor market, the Commerce Department reported this morning. The headline unemployment rate rose slightly to 3.6 percent,

The labor force participation rate rose to 63.4 percent, reaching its highest level since 2013. A higher labor force participation rate indicates a greater proportion of the working-age population is working or actively seeking employment. That was the prime reason for the rising unemployment rate.

In keeping with recent trends, most of January’s payroll gains came from the private service-providing sector, with education and health services adding 72,000 new jobs for the month. Leisure and hospitality industries also posted strong job gains, adding 36,000 jobs in January.

The Service Sector Grows Again

Some good economic news: U.S. services sector activity picked up in January, with industries reporting increases in new orders. The Institute for Supply Management said yesterday its non-manufacturing activity index increased to a reading of 55.5 last month, the highest level since August. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.

The report came on the heels of a survey from the ISM on Monday showing manufacturing rebounded in January after contracting for five straight months. Manufacturing now accounts for about 11 percent of the economy.

One down number: The survey’s index for services industry employment slipped to a reading of 53.1 last month, down from 54.8 in December. This is in line with slowing job growth, both as workers become more scarce and demand for labor cools.

The High Cost of Renting

If you rent your home, you might be paying a lot more than you used to. A new report from the Joint Center for Housing Studies of Harvard University calculates that 10.9 million renters spent more than 50 percent of their income on housing in 2018. That equates to one in four renters.

This has become more of an issue in recent years. A renter is defined as cost-burdened if they spend more than 30 percent of their income on housing costs. According to the study, there were 6 million more cost-burdened renters in 2018 than in 2001.

And it's not just lower-income folks who are feeling the pinch. In recent years, there’s been a surge in demand for rental units among higher-income Americans. Households with incomes of at least $75,000 accounted for more than three-quarters of the growth in renters (3.2 million) from 2010 to 2018.

The Amazing Tesla Run-Up

The big story in the stock market this week has been Tesla, which has added $60 billion in market cap over the past week, which by itself is higher than the value of companies like Target and John Deere. In fact, Tesla now has a higher market cap than General Motors, Ford, and Fiat Chrysler combined.

Is this rational? Consider that the revenue for GM, Ford and Fiat Chrysler totals $620 billion over past year. Meanwhile, Tesla has had revenue of $25 billion over that same time frame.

One more comparison: Tesla's market cap is now larger than that of McDonald's. McDonald's had more than $6 billion in net income last year, while Tesla had a net loss of $862 million.

February: The Cruelest Month?

Stocks are limping into February: The S&P 500 fell 1.8 percent Friday, its worst day since October. It was down 2.1 percent for the week, and ended the month of January with a 0.2 percent loss, its first negative month in the last five.

What makes that even more concerning is that February is historically a weak month for the market. February is the third worst month of the year, with an average negative decline of 0.1 percent. It’s been up only 53 percent of the time since World War II, as opposed to an average gain for all months of 0.7 percent.

That makes this month the worst-performing of the non-summer months. September and August are the worst and second weakest months for the S&P 500, going back to World War II.

Fourth Quarter GDP

The U.S. economy grew 2.1 percent in the fourth quarter, according to the initial estimate released yesterday by the Commerce Department. For the full year, GDP grew 2.3 percent, below the 2.9 percent increase from 2018 and the 2.4 percent gain in 2017,

Continued gains in consumer spending helped propel the economy in the year’s final quarter, though the rate of increase came in at 1.8 percent, well below the 3.2 percent pace in the third quarter. Still, personal consumption expenditures added 1.2 percentage points to the quarterly rise in GDP.

Other factors in the quarter's growth: Durable goods spending rose 1.2 percent while nondurables saw growth of 0.8 percent, the slowest pace since the first quarter of 2018. Net exports also helped, rising 1.4 percent, while imports fell 8.7 percent, owing to a drop in consumer goods and motor vehicles.

Millennials' Favorite Stocks

Apex Clearing recently unveiled its fourth-quarter Millennial 100 report, which analyzed more than 734,000 portfolios owned by U.S.-based investors with an average age of just over 31 years. So what stocks are millennials buying? Here are the top ten, in order of popularity:

1. Apple
2. Amazon
3. Tesla
4. Facebook
5. Microsoft
6. Berkshire Hathaway
7. Walt Disney
8. Netflix
9. Advanced Micro Devices
10. Alibaba

Consumer Confidence Is Back

Consumer confidence in the U.S. bounced higher in January as the outlook around the labor market improved, data released yesterday by The Conference Board showed. The Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. That marked its highest level since August.

The data released showed 49 percent of consumers think U.S. jobs are “plentiful,” up from 46.5 percent. Those saying jobs are “hard to get” decreased to 11.6 percent from 13 percent.

In addition, assessments of current business and labor market conditions increased to 170.0 from 166.6 in December. Expectations for future conditions climbed to 102.5.

Apple's Year

Apple is set to report its earnings today, a long way from where the company was a year ago. The company’s stock has more than doubled over the past 12 months, and its market capitalization is now around $1.4 trillion.

At this time last year, Apple reported that sales of its iPhone were slowing, and that China was proving to be a more sluggish market than expected; it fell 7.6 percent on the day it reported earnings. That capped off three months in which the stock had dropped by more than 30 percent.

Now things are totally different. There are only two other S&P 500 index components that have doubled in the past year: Advanced Micro Devices is up 130.5 percent and Lam Research Corp. is 119.1 percent. But those semiconductor companies are much smaller than Apple - AMD’s market cap is $53.3 billion, and Lam’s market cap is $43.5 billion.

Kids Are Getting a Raise

Do you give your children a weekly allowance? It's very common: Nearly 7 in 10 American parents gave their children a regular allowance last year. And those kids are getting a raise.

Children raked in an average of $499 in allowance last year, according to RoosterMoney, an allowance tracking app. That's a 6 percent increase from what they received in 2018.

Children generally start receiving allowance around age four, with younger children often starting to get an allowance when their siblings begin to receive it. The weekly allowance rate correlated roughly to $1 per year of the child’s age: Four year-olds, for example, got an average of $4.18 per week, while 14-year-olds received an average of $13.87.

Your New Credit Score

If you're one of those people who constantly checks your credit score, you might notice a difference in it fairly soon. Fair Isaac Corp., the creator of the FICO score, announced that its new FICO 10 model is expected to cause scores to fluctuate roughly 20 points.

If you’ve been carrying credit card debt, you could see a drop in your credit score. The new credit scoring model will be calculated to incorporate consumers’ account balances for the previous 24-plus months, as opposed to just the most recent month.

FICO estimates that roughly 110 million consumers will see a change to their credit score once the new model is in effect later this summer. Approximately 40 million consumers will see a shift upward over 20 points and another 40 million will see a shift downward.

The Markets Aren't Moving

The markets barely moved at all yesterday. The S&P 500 rose by an almost imperceptible 0.03 percent, while the Dow Jones Industrial Average dropped by the same 0.03 percent.

That's the way things have been going lately: U.S. stocks have been unusually quiet for a while now. Seventy trading days have come and gone since October 8 of last year, when the S&P 500 tumbled by nearly 1.6 percent and the Dow plunged 314 points.

How unusual is that? Since 1928, the major stock market indexes have declined at least 1 percent twice a month on average, according to researchers at Piper Sandler.

Housing Pops

Here's an eye-popping stat: U.S. homebuilding surged to a 13-year high in December. Activity increased across the board, suggesting the housing market recovery was back on track despite low mortgage rates.

Housing starts jumped 16.9 percent to 1.608 million units last month, which marks the highest level since December 2006. The percentage gain was the largest since October 2016. On top of that, data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, up from 1.365 million.

Over the longer term, housing starts soared 40.8 percent on a year-on-year basis in December. For the entire year, an estimated 1.290 million housing units were started in 2019, up 3.2 percent compared to 2018.

The Manufacturing Rebound

Positive news from the manufacturing sector: The Federal Reserve said on Friday that manufacturing production rose 0.2 percent last month, following a 1.0 percent increase in November. A drop in motor vehicle output was offset by increases in production of other durable goods, food and beverages, and other products.

The drop in overall industrial output was driven by a 5.6 percent decline among utilities, as demand for heating fell during an unseasonably warm December. That was on top of a 4.6 percent fall in the production of motor vehicles and parts in the month.

So there must have been several areas where production increased. Manufacturing output of food, beverage and tobacco products rose 1.3 percent, nonmetallic mineral products rose 2.3 percent, primary metals output rose 1.3 percent, and computer and electronics products rose 1.4 percent.

Thoughts for Martin Luther King Day

“We must accept finite disappointment, but never lose infinite hope.” - Martin Luther King Jr.

"The man who didn't want his wife to work has been succeeded by the man who asks about her chances of getting a raise." ~ Earl Wilson

"Equal rights, fair play, justice, are all like the air: we all have it, or none of us has it." ~ Maya Angelou

The Trillion-Dollar Club

Yesterday, Alphabet Inc., the parent company of Google, became the newest member of the the $1 trillion club, capping off a rise of about 40 percent in its value just since last June. Its market capitalization of $1 trillion is exceeded only by Apple at $1.38 trillion, and Microsoft at $1.27 trillion.

Apple was the first to hit the market cap milestone in 2018, followed by Microsoft. Amazon.com surpassed $1 trillion in value in a single intraday trade in September 2018, but has never closed above the mark and thus has never officially had a $1 trillion market cap.

Facebook may well be the next member of the club, but it has a ways to go yet. It closed Thursday with an all-time high market cap of $632.4 billion.

Reliance on Social Security

A sobering report on Americans' retirement prospects: Four in 10 older Americans rely solely on Social Security income in retirement, according to anew study from the National Institute on Retirement Security. The report found that only 6.8 percent of Americans receive income from a combination of Social Security, a defined benefit pension and a defined contribution account.

The report noted that Social Security benefits replace only about 40 percent of pre-retirement income, whereas most financial planners recommend at least a 70 percent income replacement rate for retirees. If Social Security income had been 10 percent higher in 2013, some 500,000 fewer older households would have been in poverty.

Without Social Security income in 2013, the report found, the number of older households receiving public assistance would have increased by nearly 45 percent. The number of older persons receiving Medicaid would have increased by more than 40 percent.

The State of Inflation

U.S. consumer prices rose slightly in December, the Labor Department said yesterday. Its consumer price index increased 0.2 percent last month after climbing 0.3 percent in November. The monthly increase in the CPI has been slowing since jumping 0.4 percent in October.

On the other hand, the long-term trend is rising. For the entire year of 2019, the CPI accelerated 2.3 percent, the largest rise since 2011. That followed an increase of 1.9 percent in 2018.

Inflation in December was held back by declines in the costs of used cars and trucks, airline tickets and household furnishing and operations. Meanwhile, there were increases in the prices of health care, apparel, new motor vehicles, recreation, and motor vehicle insurance.

The Big Five

It’s no secret that a handful of tech giants have been dominating the stock market, but is it getting out of control? The top five U.S. companies — Apple, Microsoft, Alphabet, Amazon and Facebook — now make up 18 percent of the total market capitalization of the S&P 500, the highest percentage in history, according to Morgan Stanley.

Apple and Microsoft, which rose 86 percent and 55 percent in 2019, respectively, together accounted for nearly 15 percent of the S&P 500′s advance last year. The five biggies were the five biggest contributors to the S&P's gains last year; in sixth place was JP Morgan Chase, which accounted for just over 2 percent.

Apple, the largest of the five, now has its weighting in the S&P 500 larger than 4 percent. Going back to 1990, only five stocks — Apple, Microsoft, Generic Electric, Cisco Systems and Exxon Mobil — have claimed more than 4 percent of the S&P 500.

CFOs Look to the Future

Chief financial officers at big U.S. companies are entering 2020 on a cautious note, according to a survey released last week. The Deloitte CFO Signals Survey showed that while the corporate leaders see the economy as “good,” they anticipate that before the year is over, both economic and market conditions will slow.

As Wall Street continues to see record highs, 77 percent of the respondents said stocks are overvalued, the highest level in nearly two years. Just 4 percent said equities are undervalued, down from 10 percent in the previous reading.

While CFOs see a downturn, they’re hardly foreseeing a worst-case scenario. In fact, expectations for an outright recession fell to 3 percent in the fourth-quarter survey, down from 15 percent in the first-quarter 2019 survey. However, 97 percent say a slowdown already has begun or will start sometime in 2020.

December Jobs Report

The U.S. economy capped off 2019 with 145,000 new jobs added in December, the Department of Labor said this morning, a tick down from recent months. The headline unemployment rate held at a five-decade low of 3.5 percent.

But the decades-low unemployment rate has translated to just meager wage gains. December’s year on year average hourly wage gain of 2.9 percent marked the first time this measure has dipped below 3 percent since July 2018.

For the entire year of 2019, the American economy added 2.1 million jobs, an average of 176,000 a month. That makes last year the slowest year for job creation since 2011 — three years after the start of the financial crisis. That figure is also down a bit from the 2.7 million positions added in 2018.

Service Up, Manufacturing Down

While the service economy roars on, the manufacturing economy continues to sputter. The Institute for Supply Management's gauge of the U.S. services sector this week produced a reading solidly in expansionary territory and above expectations, while the manufacturing index hit its weakest level since June 2009 last week.

The gap between the two indexes in December was the largest since November 2015 and the third largest differential in a decade. The manufacturing industry is typically thought of as a leading economic indicator, and a sustained downturn has historically presaged turmoil and even recession. Fortunately, that does not look to be the case right now.

For one thing, manufacturing represents just about 11 percent of the U.S. economy, while the services sector has become the dominant means of employment for Americans. In addition, the U.S. manufacturing industry has been hurt by the strong dollar and weakening global consumer demand, while the service sector is more resistant to those factors.

The Trade Deficit Narrows

Some good economic news: The U.S. trade deficit fell more than expected in November as the simmering tariff battle between the us and China cooled off some. The shortfall in goods and services declined to $43.09 billion for the month, which represented the U.S.'s lowest trade deficit since October 2016.

Overall for the U.S., exports rose $1.4 billion to $208.6 billion, while imports fell $2.5 billion to $251.7 billion. On a year-to-date basis, the total deficit of goods and services has now fallen $3.9 billion, or 0.7 percent, from the same period in 2018. That's due almost entirely to a decline in imports.

For China in particular, our trade deficit China decreased $2.2 billion in November to $25.6 billion. That was the result of a $1.4 billion increase in exports and an $800 million decline in imports.

What Drove Last Year's Rally?

The S&P 500 index rose nearly 29 percent last year, its best performance since 2013. But it might be somewhat concerning that market’s historic run in 2019 was driven almost entirely by a vigorous rise in price rather than steady earnings growth, according to researchers at Goldman Sachs.

That rally in stock prices is a phenomenon known among equity analysts as multiple expansion, referring to price-to-earnings, or P/E ratios. When shares of a company gain more than their underlying earnings, an asset can sometimes be referred to as richly priced. That's what fueled much of last year's rally.

In fact, earnings growth explains just 8 percent of the S&P 500 return last year, Goldman’s researchers wrote. Since 2009, by contrast, earnings growth has been the primary driver of equities, accounting for 67 percent of S&P 500 returns.

Market Scorecard for 2019

The S&P 500 finished 2019 up nearly 30 percent on the year, the strongest performance for that index in six years. The tech-heavy Nasdaq did even better, posting a gain of 35 percent, while the Dow Jones Industrial Average was up 22 percent.

But the gains were a bit wind-aided: One of the keys to the 2019 success was starting from a low base. The S&P 500 ended 2018 with a loss of more than 6 percent, closing the year at 2,486. It finished 2019 trading at 3,220.

Still, the S&P is closing 2019 about 10 percent above 2018′s high of roughly 2,900. Even measuring from that high point, the market in 2019 was close to the average return for the S&P 500 of 9.8 percent.

The Worst Stocks of 2019

In a strong year for the market, no stock in the S&P 500 index lost more than half its value last year. Here are the ten worst-performing stocks in the S&P for the year 2019:

1. Abiomed: down 48 percent
2. Macy's: down 40 percent
3. DuPont: down 39 percent
4. Occidental Petroleum: down 30 percent
5. DXC Technology: down 30 percent
6. Mylan: down 28 percent
7. The Gap: down 27 percent
8. The Mosaic Company: down 27 percent
9. L Brands: down 25 percent
10. Alliance Data Systems: down 25 percent

Thoughts for the New Year

"I hope that in this year to come, you make mistakes. Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing yourself, changing your world. You're doing things you've never done before, and more importantly, you're doing something." ~ Neil Gaiman

"The new year stands before us, like a chapter in a book, waiting to be written. We can help write that story by setting goals." ~ Melody Beattie

“Any new beginning is forged from the shards of the past, not from the abandonment of the past.” ~ Craig D. Lounsbrough