After two weeks of gains, the S&P 500 slumped once again. In addition to renewed fears about the deadly coronavirus — now with more than 76,000 confirmed cases — traders have been favoring assets they consider less risky.
This rush to so-called safe haven assets is most evident with gold prices, which have surged to a seven-year high and are up nearly 8% already this year. Meanwhile, the yield on the benchmark 10-year Treasury note, which moves inversely to price, has fallen in recent weeks — another sign that people on Wall Street are spooked.
Apple is the latest among major U.S. companies that have warned that the coronavirus could impact its revenue ahead, while Federal Reserve policymakers also highlighted the virus as "a new risk to the global growth outlook" in the minutes from the central bank's January meeting.
Even so, there's reason to be optimistic about the economy. The slowdown in manufacturing spurred by the trade spat between the U.S. and China appears to be over. The coming week brings a slew of housing-related data, which economists generally expect improved in January, along with earnings results for retailers like Macy's, Home Depot, Best Buy, and the TJ Maxx parent company.
Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.
What's happening: Gold prices have been rising pretty steadily for years, but there's been an especially sharp increase since November. Gold has risen above $1,600 per ounce to the highest level since February 2013. The latest increase in gold prices reflects some concern among traders that the coronavirus outbreak will dent global growth.
Video by David Fang
Why it matters: Investment pros consider gold to be a safe haven, an asset that investors typically favor during periods of slower economic growth or as a refuge for when other markets decline. Meanwhile, people on Wall Street have increasingly been calling for a correction in the stock market, or a slump of at least 10% from a recent high.
People invest in gold because it can serve as a "hedge" for their portfolios. When other investments lose value, gold tends to appreciate. However, that's not always the case. While the price of gold has jumped more than 20% in the past year, the S&P 500 is up a comparable amount during the same time period.
What it means to you: Even if you don't have any investments in gold — the metal itself or exchange traded-funds (ETFs) that track this commodity — it's still useful to track its performance. That's because when the price is surging, it reflects some concern about a possible slowdown in the stock market and even the broader U.S. economy. What's more, the recent rise in prices can mean it's a better time to sell old jewelry or coins.
Finally, the rise in gold prices can be a good reminder of why it's important to have a mix of various assets in your portfolio. Diversification can help to reduce your overall risk, because your portfolio's performance doesn't hinge on just one investment.
What's happening: Several measures of the housing market that traders closely track are scheduled for release in the week ahead. On Wednesday, expect a report on the number of new homes sold in the month of January, followed on Thursday by an indicator measuring housing contract activity for pending home sales.
Economists currently project increases in both of these measures of new housing activity.
Why it matters: The main issue in the housing industry currently is supply, specifically of more affordable homes. And that helps to explain why both the number of new homes and pending home sales dropped in December, compared with the prior month. Even so, economists see reason to be optimistic since the Federal Reserve cut interest rates three times in 2019 in an effort to encourage more borrowing among consumers.
What it means for you: Wall Street monitors the real estate market so closely because the housing industry generally makes up to 18% of GDP, according to the National Association of Home Builders. And housing is perhaps one of the best gauges of confidence, because consumers need to feel hopeful about their financial situations to justify such a big expense.
Video by Jason Armesto
Stock prices have rebounded after a bout of turbulence in January to hit new all-time highs once again in the past week. Still, market watchers caution that the 2020 presidential election season has the potential to rattle the market in the months ahead, along with the next steps in U.S.-China trade talks.
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 resisting the urge to sell investments. 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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