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Stocks charged out of the starting gate to start 2020, following on the momentum of the fourth quarter of last year, with a focus on the cyclical stock sectors and a recovery in commodities based on more optimistic views about global growth in 2020. While we were skeptical about the economic optimism, all of that became a moot point when the Coronavirus epidemic in China began to take over the headlines in mid-January. Bond yields showed the biggest initial reaction, with U.S. Treasury yields slipping down to below 1.5% briefly, from almost 2% earlier in the month. Asian and European stocks also had a more negative immediate reaction, since the epicenter of the virus was in China and those economies are most impacted by a potential slowdown there. The U.S. stock market has held in relatively well since money flows were still strong into the growth sectors and investors also seem to believe that central banks will once again come to the rescue if growth sputters. But cyclical and resource stocks clearly took the largest sectoral hits with investors worried that limiting movement in China would not only slow down spending in the world’s second largest and fastest growing economy, but it would also disrupt the global manufacturing supply chains that are centered in that economy. Commodities were knocked sharply lower on those growth fears with the CRB Commodity Index dropping 8.2% in January, lead by double-digit percentage losses in the oil and copper markets. Energy and base metal stocks were the biggest losers with losses similar to those of the underlying commodities. (more…)