Only a month ago, I seriously considered raising my economic and market forecasts for this year, including my forecasts for the plastics industry.
After a rather sluggish performance in 2019, the U.S. economy was showing signs of renewed vigor. The members of the Federal Reserve persistently stated they were "on hold" with changes to the Fed Funds Rate for the foreseeable future. The major source of uncertainty in the market was generated by the outcomes of the primaries for the Democrats.
The data released so far this year indicated the U.S. economy, including the important manufacturing and housing sectors, performed nicely through February. Most importantly, the crucial U.S. employment statistics got off to a stronger-than-expected start for 2020.
All of this was reflected in most of the major stock market indicators, which were steadily hitting all-time highs with strong upward momentum.
As we all know by now, these statistics from the first two months of 2020 reflect life before the new coronavirus, COVID-19.
The next few days will see the release of some of my favorite economic indicators, for the month of February. These include retail sales, industrial production, housing starts and construction spending. I am concerned the natural reaction to this data will be one of apathy or even poignance. Something like, "That was then, but now things appear much worse and I should plan accordingly."
There is already strong evidence of this response in the data from the U.S. bond market. Every day the U.S. Treasury Department publishes the yields on the securities it issues based on the daily market price for those securities. When plotted on a chart, the yields for the various maturities of these securities creates what is called "the yield curve."
On the chart, I have plotted three yield curves: one from last week, one from last month, and one from last year. These are instructive because the yield curve is a good indicator of the market's appetite for risk at any given time. U.S. treasuries are considered to be the safest of investments, and demand for them increases when the prevailing economic conditions start to deteriorate. When demand for treasuries increase, the yield curve goes down.