Stocks shook off most worries about the coronavirus spread and added another 3% last week to push back towards all-time highs. Despite the rally in equities, Treasuries are also still pushing higher. 2019 was the rare year that saw both bonds and stocks post double digit returns and that trend is continuing into 2020.
The question now becomes which narrative should investors believe? The risk-on sentiment coming from equities or the defensive safe haven pivot of Treasuries? Historically, the bond market tends to be right more often than not. Taking a look at the big picture, that seems like the correct judgement here as well. The coronavirus has ground the Chinese economy, the 2nd largest in the world, to a virtual halt. That affects not just China but every company and country that does business with them, which is essentially everybody. Asset prices continue to be inflated by the Fed and central banks around the world, but the underlying fundamental backdrop is not good.
Precious metals and government bonds are still looking strong here. The dollar has returned to a position of strength as the yuan and euro continue to drift lower.
Here is the full scorecard for the week ahead.