Coronavirus could hit consumer confidence and spending — here's what to watch in the week ahead


Once again, the week is off to a tumultuous start for investors. A price war in the oil market over the weekend sent prices for that commodity tumbling more than 20% on Monday, while the major U.S. stock benchmarks are down more than 6% as of mid-morning, and the yield on the benchmark 10-year Treasury note dropped below 0.5% for the first time ever.

This marks the third wild week in markets, as traders try to assess the potential economic impact of the contagious coronavirus. Last week, the S&P 500 whipsawed between daily gains of as much as 4.6% to losses of as much as 3.4%, and ultimately ended the week 0.6% higher.

As of Friday's close, this benchmark had lurched up or down by at least 3% on 6 of the last 10 trading days, and appears poised to do so again on Monday. That's unusual: By comparison, moves of this magnitude historically have happened about four days a year, on average, since 1980, according to FactSet data analyzed by Grow.

In an effort to stabilize markets, on March 3, the Federal Reserve cut its benchmark interest rate by 50 basis points, pointing out that the coronavirus "poses evolving risks to economic activity." It was the central bank's first emergency rate cut since the 2008 financial crisis. 

Even so, the stock market has continued falling, while other markets also are reeling. Wall Street's fear gauge known as the CBOE Volatility Index, spiked to the highest level since 2008.

As the coronavirus continues to spread within the U.S., one question for the week ahead will be how it's affecting consumers and business owners. In addition to monitoring the latest developments from the outbreak, traders will watch the results of two surveys to gauge possible declines in consumer spending or business prospects.

Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.

The coronavirus could take a toll on consumer spending

What's happening: One of the main themes in the market outlook for March is how the coronavirus could affect the pace of economic growth. Because consumer spending makes up about two-thirds of U.S. gross domestic product (GDP), traders will monitor reports measuring consumer confidence.

A preliminary read for this month is due on March 13 from the University of Michigan. Economists currently project a decrease to the lowest level since September.

Why it matters: A recent study showed that millennials are changing spending habits most as a result of the outbreak, while a weekly measure of sentiment collected by Bloomberg fell to a 10-week low. If Americans are feeling less confident, they could pull back on big-ticket purchases like homes.

What it means for you: Many questions remain about the coronavirus, from how quickly it will spread in the U.S. to how it could affect the economy. In addition to the precautions you can take with your health or travel plans, it's important to stay calm in your financial life, even when markets are dropping. In addition, there are smart ways to take advantage of the Fed's surprise rate cut.

The coronavirus could also worry business leaders

What's happening: On March 4, the Federal Reserve released its so-called Beige Book, a report released eight times a year detailing current economic conditions. Policymakers referenced the coronavirus 48 different times, noting that businesses had cited it as a potential risk to near-term growth. That's lead some market watchers to speculate the virus was a factor in the surprise rate cut.

In the week ahead, the National Federation of Independent Business will release its monthly report that measures confidence among small business owners. This survey looks at 10 different components, like whether business owners plan to hire more workers or spend more money, and how they feel about the economy.

Why it matters: Businesses with fewer than 500 workers account for almost half of private sector employment, so traders closely monitor how these business owners feel. A separate survey recently found that many big companies say they've already taken a big hit from the virus with a "major decrease" in demand from China.

What it means for you: Even if you don't work for a small business, chances are you know someone who does, so the confidence of these business owners has a broader impact. On Friday, March 6, U.S. employers reported job growth that smashed economists' expectations in February and the unemployment level fell back to a 50-year low of 3.5%.

In assessing the potential impact of the coronavirus, traders will pay extra attention to hiring plans because they reveal important clues about the overall health of the U.S. economy. If employers pull back on adding workers to their payrolls, that may make it more difficult for job seekers to find a new position. Still, there are ways to ensure your own success following a job interview

Why you shouldn't panic when markets are bumpy

Video by Stephen Parkhurst

The bottom line

The U.S. stock market remains in correction territory, defined as a decline of 10% from a recent high. This marks the seventh such market downturn since the Great Recession. While these can be scary, they're still normal — since World War II, the average correction for the S&P 500 has lasted four months and it took another four months for the market to recover, according to analysis by CNBC and Goldman Sachs. 

That said, it's important to keep your investing goals in mind and stay focused on the long-term merits of investing. That's because the market has always bounced back, even from worse sell-offs than the current one.

Remember that short-term turbulence can be a good opportunity to buy stocks at lower prices. Stick to some of the tips for beginner investors, which are sound no matter how long you've been investing.

Finally, continue adding money regularly to your portfolio, focusing on ways to manage risks, and resist any urge to sell investments out of panic. No matter what happens in any given week, it's important to keep perspective and avoid letting headline news affect your long-term investment strategy.

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