Stock markets modestly lower after renewed coronavirus concern. Apple’s announcement that the coronavirus would impact sales had international markets striking a cautious tone overnight, with the technology sector getting much of the attention. The MSCI Asia Pacific was down just over 1%, while major European indexes and S&P 500 Index futures have posted smaller losses. While it appears that the spread of the virus may be peaking, and markets and economies have shown resilience with similar outbreaks, markets are closely monitoring the risk of the impact falling outside of expectations.

Equity markets and credit spreads remain resilient, but Treasuries in high demand. Despite resilience in riskier assets, demand for U.S. Treasuries has remained strong, keeping the 10-year Treasury yield near the lower end of its recent range. With yields on German and Japanese 10-year notes still negative, Treasury yields remain attractive relative to other traditional safe-haven assets, keeping demand high and pushing yields lower. Despite signs of global growth stabilization, genuine reacceleration may be delayed a quarter or two by the impact of the coronavirus, making investors comfortable with added rate risk, at least in the short term.

Earnings season rolling right along. With 391 S&P 500 companies having reported as of February 14, 2020, S&P 500 earnings growth for the fourth quarter of 2019 is tracking 3.5 percentage points above the 2.4% estimated decline as of January 20. Revenue growth for the index is tracking to a 3.5% year-over-year increase, representing a 0.9% upside surprise to prior estimates. The consumer discretionary and technology sectors have produced the biggest upside earnings surprises relative to consensus estimates.

Corporate resilience. Looking forward, despite the impact on the Chinese economy from the coronavirus, 2020 earnings estimates for the S&P 500 have fallen by a below-average 0.7% since December 31, helping to solidify the earnings outlook during earnings season. Corporate outlooks have been supported by progress on U.S.-China trade relations and evidence of stabilizing global growth that emerged before the virus outbreak.

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