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February 2020
National Non-Operating Observations
January was a choppy month on Wall Street. Equities performed well to begin the year, with the S&P 500 hitting an all-time high on January 22. However, concerns about the coronavirus outbreak hit stocks hard toward the end of the month. The Dow dropped 603 points on the last day of January, and both the S&P 500 and Dow ended January negative for the year. The coronavirus outbreak continues to cause concern in the markets as more infections outside of China are confirmed. Investors fear that the immense economic disruption already seen in China may start to affect other economies around the world if the virus is not contained. Domestically, the Bureau of Economic Analysis provided their fourth-quarter Gross Domestic Product (GDP) “first estimate,” matching analyst expectations at 2.1 percent. Continued gains in consumer spending and a rise in net exports both helped prop up the Q4 GDP number, with consumer spending rising 1.8 percent and net exports up 1.4 percent. However, the 2.3 percent growth in U.S. GDP for the full year was below the 2.9 percent increase in 2018 and 2.4 percent in 2017. While the GDP number is below the 3 percent target set by the White House after the 2017 tax reform bill, labor market numbers continue their impressive streak. The U.S. economy added 225,000 jobs in January and 3.6 percent unemployment remains near the 50-year low—both signs of continued strength for the economy. Healthcare also continues to add jobs at a robust pace, with hospitals contributing 9,700 positions to the 35,500 jobs that the healthcare sector added to the U.S. economy in January. Although President Trump continues to pressure the Federal Reserve to cut interest rates to help lower debt costs, the Central Bank maintained its benchmark rate between 1.5 percent and 1.75 percent at its meeting on January 28-29. The minutes released from the meeting indicate no rate changes in 2020, as members take a wait-and-see approach for a “fuller assessment of the ongoing effects on economic activity of last year’s shift to a more accommodative policy stance, and would also allow policymakers to accumulate further information bearing on the economic outlook.” However, financial markets are pricing in at least one rate cut this year and possibly two, with futures prices indicating a 24.4 percent chance of a cut in March. The minutes also mention the risks of the coronavirus, and state that the easing of trade tensions would help further stimulate the U.S. economy.
†Q4 2019 U.S. Bureau of Economic Analysis “First Estimate”
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.
Notes: (1) reflective of most up-to-date data available; excludes food and energy sectors

January 2020
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
(40 bps)
Personal Consumption Expenditures, Y-o-Y(1)
0 bps
(19 bps)
(10 bps)
(85 bps)
30yr MMD
(29 bps)
(122 bps)
30yr Treasury
(39 bps)
(100 bps)
60/40 Asset Allocation*
Non-Operating Assets
The start of 2020 saw mixed performance in investment assets. The blended 60/40 Asset Allocation increased 0.12 percent from December, its fifth consecutive monthly increase. Equity performance lagged moderately, with the S&P 500, MSCI World, and MSCI Emerging Markets indices down 0.16 percent, 0.68 percent, and 4.69 percent, respectively. The Barclays Aggregate index saw a jump of 1.92 percent after two consecutive months of decline. The Bloomberg Commodity Index dropped 7.4 percent in January, the steepest monthly loss in almost five years, due to concerns raised by the coronavirus outbreak. In general, January saw a flight to risk-averse instruments, as equity prices fell and investors flocked to safer bonds and gold, which ticked up 4.7 percent.
Long Term
Last Twelve Months
Non-Operating Liabilities
As global fears around the coronavirus outbreak continued, investors sought haven in low-risk assets, which significantly drove down yields. 30-year MMD and 30-year Treasury rates plummeted in January, reversing a five-month trend of consecutive increases. 30-year MMD ended the month at 1.80 percent, down -29 bps from December, and -122 bps from January of 2019. This decrease led to the 30-year MMD being lower than the recent low of 1.84 percent, as seen in August 2019. 30-year Treasury ended the month at 2.0 percent, down -39 bps from December, and -100 bps from January 2019. In the short-term markets, 1M LIBOR finished January at 1.66 percent, down -10 bps on the month, and down -85 bps on the year. The tax-exempt short-term rate SIFMA sunk to 0.94 percent in January, down -67 bps on the month, and down -49 bps on the year. Even amidst the economic uncertainty created by the outbreak that has led to the global community taking caution, investors remain relatively more optimistic about the market outlook, as indicated by their continuing faith in riskier assets. Municipal fund flows gained significant traction in January with increased positive sentiment from investors, seeing $11.5 billion enter municipal funds to end the month. After a historical year in 2019—which saw $93.9 billion enter the market to beat the previous record a decade prior when inflows totaled $81.1 billion—the January muni fund flows eclipsed any amount seen in a given month in 2019. January saw investors taking a “risk-off” approach due to volatility in the stock markets and uncertain market outlook, as evidenced by the $54.7 billion of domestic equity fund outflows since the start of the year, which is higher than any amount seen in a given month in 2019.
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets, as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index,” are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply- and demand-sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investment and principal and interest payments on existing and maturing holdings. Strong fund flows signal generally that investors have more cash to put to work, a boon to demand. Fund inflows generally are moderate and consistent over time, while fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in quick position liquidation, which can drive yields up considerably in a short amount of time.
©2020 Kaufman, Hall & Associates, LLC
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