The U.S. stock market fell for the second straight week, something the S&P 500 hadn't done since early October, while the Dow Jones Industrial Average tumbled the most since August on Friday. Experts point to the deadly coronavirus to explain the market's latest bout of turbulence, as traders worry what impact the virus will have on global economic growth.
Other markets are also experiencing big changes. Oil prices have slumped more than 15% already this year. The bond market flashed a warning sign about a possible recession, as the yield on the benchmark 10-year Treasury note fell below the three-month Treasury rate, creating what's known as an inverted yield curve. Finally, the price of gold continues to soar, up 4% this year to the highest level since 2013.
While coronavirus is causing some uncertainty, history suggests, and experts caution, that the potential impact on the markets is likely to be short lived. There's another reason to remain optimistic, too: Earnings season for U.S. publicly traded companies has been better than analysts expected.
Among companies that already have disclosed results, more than 70% have beaten analyst expectations, FactSet data shows. There have been some wild swings in prices nonetheless. Facebook shares tumbled more than 9% Thursday and Friday after the social media giant reported that expenses jumped 51% in 2019 compared with the prior year.
There are more than 80 companies on this week's earnings calendar, including Google parent Alphabet, Walt Disney, Aflac, and Tyson Foods. In addition, the all-important monthly jobs report is scheduled for release on Friday. Traders will also closely monitor the results of Tuesday's Iowa caucus and manufacturing reports.
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: The Iowa caucus takes place on Monday, which is the first opportunity Americans have to decide who will become the eventual Democratic nominee for the U.S. presidential election. That said, this caucus doesn't forecast what will happen come November: Only about half of winners in Iowa have secured the party's nomination since 1972, according to data from the Des Moines Register.
Why it matters: Markets can be surprisingly resilient, even impervious, to politics. Even so, some prognosticators are worried that there could be some short-term bumpiness on the results of the Iowa caucus and have warned that it could be a wake-up call for the stock market.
What it means for you: The stock market had been relatively calm until the past couple weeks, and experts say the 2020 presidential election could be a source of some movement over the next nine months. That's actually good for long-term investors because by taking advantage of a strategy known as dollar-cost averaging, you can buy stocks at lower prices.
Finally, it's important to avoid making emotional decisions based on politics with your portfolio. Since 1928, only three presidents have seen the stock market end up lower on their watch.
What's happening: A closely tracked U.S. manufacturing survey showed that this industry shrunk in December to its lowest level in more than a decade. When this gauge is below 50, as it is now, that signals contraction. Economists currently project that this survey, scheduled for release on Monday, slightly improved in January.
Economists are similarly optimistic about other manufacturing-related reports. Those include the number of orders to U.S. factories for big-ticket manufactured goods and orders for durable goods, those meant to last at least three years, both of which are due on Tuesday.
Why it matters: The manufacturing industry today is much smaller than it was decades ago, making up just 11% of gross domestic product (GDP) in recent years. Even though it's a smaller engine of the broader U.S. economy, investors still track the health of this industry as a barometer of broader growth.
What it means for you: While your livelihood may not be directly connected with the manufacturing industry, changes in this sector can still affect you — especially when activity ramps up or slows down. What's more, a big uptick in this segment of the economy could help to offset some of the concerns about a downturn.
Amid the market's latest bumpiness, the S&P 500 fell for the fist time in January after four months of gains. The prospect for February isn't so rosy, either; this benchmark historically has ended the month flat since 1928, according to figures compiled by Yardeni Research. Even so, experts forecast that the market will continue to rise in 2020.
The week ahead is likely to see some bumpiness as traders try to predict how the coronavirus will affect economic growth in China and around the world. Meanwhile, the monthly jobs report often results in some market moves when hiring is better or worse than economists expected.
Remember that this type of short-term turbulence can be a good opportunity to buy stocks at lower prices and 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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