The Big Number
The decline in the yield of the 10-year Treasury over the past two weeks.

What this means
So-called “exogenous events” are back in a big way with the coronavirus spreading fear and uncertainty around the globe.  The 10-year Treasury yield fell sharply but, unlike last August, the yield curve failed to invert, suggesting that in spite of short-term worries, the drumbeat of an imminent recession is not being heard.

Market Notes
At this point, the impact of the coronavirus on economic growth is a classic unknowable unknown, but traders decided to sell first and ask questions later. China has promised to pump liquidity into its markets as governments worldwide have clamped down on travel.

The Markets’ Reaction
U.S. stocks had their biggest sell-off since last October; the S&P 500 (SPX) declined -2.1% and is now flat on the year.  To us, the market action on Friday and Monday looked like panic selling, which is generally short-lived. On the week, emerging markets were the biggest loser, down -5.1% (MXEF) and international developed markets fell -2.5% (MXEA).

What to Watch
All eyes will be on the spread of the coronavirus, but there is other news.  Non-manufacturing purchasing manager index (PMI) data is out Wednesday for the U.S., China, and Europe. January jobs numbers are reported on Friday, and earnings will continue to roll in.

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