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Path is clear for a year-end rally

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Traders work on the floor at the New York Stock Exchange.

Brendan McDermid | Reuters

With trade tensions toned down, stocks have clearance to rally into year-end, a traditionally positive time for stocks.

Stocks surged to record highs in the past week, as the U.S. and China moved to announce a phase one trade deal that halts tariffs that were set to go into effect Sunday. Stocks gave up some of their best gains Friday, in a sell-the-news move after U.S. and Chinese officials announced the agreement.

“Three big geopolitical things are taken off the table — USMCA, phase one and Brexit, and even though we might not like or be fulfilled by phase one, these uncertainties are behind us,” said Sam Stovall, chief investment strategist at CFRA.

Earlier in the week, the House had approved the USMCA, a revised version of the North American Free Trade Agreement. On Thursday, British voters handed the Conservative party a strong victory, meaning there should be no gridlock as Prime Minister Boris Johnson pushes through Brexit, the U.K.’s planned exit from the European Union.

“We’re getting a running start on the Santa Claus rally,” said Stovall. Stovall said historically stocks often hit the low of the month in mid-December, before rallying into the rest of the year.

The S&P 500 was up less than a point on Friday, but ended the week with a gain of 0.7% at 3,168. The Dow ended the day up just 3 points, at 28,135, but ended the week with a gain of 0.4%. The Dow is up about 20% for the year so far while the S&P is up 26.4% for the year.

The trade deal was met by some skepticism as investors hoped to see more details. The market will continue assessing the deal in the coming week.

“Phase 1 is less ambitious than recent reporting, but modestly beat our below consensus expectations by partially reducing September tariffs. Yet ambiguity on key issues suggests execution risk remains for 2020, meaning this ‘uncertain progress’ is not yet a ‘game changer’ for our outlook.,” wrote Michael Zezas, Morgan Stanley policy analyst.

There was some disappointment that more tariffs weren’t rolled back, which would have been a bigger plus for corporate earnings and the economy. Goldman Sachs economists said they expected a 20% rollback in tariffs, but the reduction of tariffs on $120 billion in goods to 7.5% amounted to just 10%.

“While the smaller tariff rollback is slightly negative relative to our expectations, we note that the most important aspect of the agreement—assuming it is finalized—is that US tariffs are now set to decrease, marking a sharp turn from the US stance over the last two years,” the economists noted.

Liz Ann Sonders, Charles Schwab chief investment strategist, said a trade deal would be a slight positive as it had been largely priced into the market, but if talks had unraveled without an agreement, a new wave of tariffs would have been very negative for stocks.

Sonders said she remains focused on U.S. large caps over small caps, and expects the market to have a positive year in 2020.

“I don’t think it will be a steady, boring end-the-year-up-6% with no drama,” said Sonders. “I think the drama will not be just driven by trade but increasingly by the election.” She said small caps are caught up in the value trade and appear to be breaking out because of it, but they haven’t yet proven themselves on a fundamental basis.

Sonders said it’s important that the weakness in manufacturing does not spill into services, and she’s watching the jobs market for clues. “I do think the labor market really holds the key of whether we see this manufacturing weakness morph more broadly into the economy,” she said. “If not, I think we’re okay for next year.”

She said the market will have to see earnings growth next year. “It does not mean a gangbuster year for the market. Probably with decent swings around it like we’ve had in the last year and a half,” she said.

What to watch

There are a few important economic reports in the week ahead, with PMI data on Monday on the service sector and manufacturing. There is industrial production Tuesday, and personal income and spending is Friday. Consumer sentiment could be important on Friday.

Clearly, traders will be watching the jobless claims Thursday to see if it remains elevated after a two-year high reported in the past week. Claims are seen as an early warning for the jobs market, which so far looks strong. Economists said seasonal factors around Thanksgiving may have impacted the weekly claims data.

Week ahead calendar

Monday

8:30 a.m. Empire State manufacturing

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI

10:00 a.m. NAHB survey

4:00 p.m. TIC data

Tuesday

8:00 a.m. Dallas Fed President Robert Kaplan

8:30 a.m. Housing starts

8:30 a.m. Business leaders

9:15 a.m. Industrial production

10:00 a.m. JOLTS

12:30 p.m. New York Fed President John Williams

1:00 p.m. Boston Fed President Eric Rosengren

Wednesday

12:40 p.m. Chicago Fed President Charles Evans

Thursday

8:30 a.m. Initial claims

8:30 a.m. Philadelphia Fed survey

8:30 a.m. Current account

10:00 a.m. Existing homes

Friday

8:30 a.m. Q3 GDP (third reading)

10:00 a.m. Personal income

10:00 a.m. Consumer sentiment

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34 US troops had brain injuries from Iran’s strike, Pentagon says

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A picture taken on January 13, 2020 during a press tour organised by the US-led coalition fighting the remnants of the Islamic State group, shows a view of the damage at Ain al-Asad military airbase housing US and other foreign troops in the western Iraqi province of Anbar.

Ayman Henna | AFP | Getty Images

The Pentagon said Friday that 34 U.S. troops were diagnosed with traumatic brain injuries suffered in this month’s Iranian missile strike on an Iraqi air base, and that half of the troops have returned to their military duties.

Seventeen of the 34 are still under medical observation, according to Jonathan Hoffman, the chief Pentagon spokesman.

President Donald Trump had initially said he was told that no troops had been injured in the Jan. 8 strike. The military said symptoms were not immediately reported after the strike and in some cases became known days later.

After the first reports that some soldiers had been hurt, Trump referred to them as “headaches” and said the cases were not as serious as injuries involving the loss of limbs.

Hoffman’s disclosure that 34 had been diagnosed with traumatic brain injury, or TBI, was the first update on the number injured in Iran’s missile attack on Ain al-Asad air base in western Iraq since the Pentagon said on Jan. 17 that 11 service members had been flown out of Iraq with concussion-like symptoms.

Hoffman said that of the 34 with TBI, 18 were evacuated from Iraq to U.S. medical facilities in Germany and Kuwait, and 16 stayed in Iraq. Seventeen of the 18 evacuees were sent to Germany, and nine remain there; the other eight have been transported to the United States for continued observation or treatment.

The one American sent to Kuwait has since returned to duty. All 16 of those who were diagnosed with TBI and remained in Iraq have since returned to duty, Hoffman said.

No one was killed in the attack on Ain al-Asad. The strike was launched in retaliation for a U.S. drone missile strike that killed Qassem Soleimani, the most powerful military general in Iran, on Jan. 3 at Baghdad International Airport.

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CDC confirms second US case of coronavirus. Chicago resident diagnosed

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U.S. health officials said Friday they diagnosed a second patient with the China coronavirus — a Chicago woman who returned from Wuhan with the infection, and they are monitoring dozens of other potential cases here.

There are 63 cases being monitored in the U.S. that stretch across 22 states, including the first patient in Washington state and the new case in Illinois, said Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases.

Officials said the new patient, a woman in her 60s, is doing well and is in stable condition. She remains isolated in a hospital as a precaution, U.S. health officials said on a conference call with reporters. The Illinois patient traveled to China in late December and began experiencing symptoms when she returned to the U.S. last week, officials said. She did not have symptoms while flying, they said.

“She was not symptomatic when flying. And based on what we know now about this virus, our concern for transmission before symptoms develop is low, so that is reassuring,” Dr. Allison Arwady, Chicago’s public health commissioner, said on the call.

Upon returning to the U.S., the patient had very limited movement from outside her home and did not use public transportation or attend any large gatherings, they said. The patient began to feel unwell a few days after completing her trip and alerted her doctor.

“CDC believes the immediate risk to the U.S. public is low at this time, but the situation continues to evolve rapidly,” Messonnier said, adding that there is likely to be more cases in coming days. “We have our best people working on this problem.”

The flu-like coronavirus, first identified on Dec. 31, has killed at least 26 people in China and infected more than 900 worldwide.

On Tuesday, the U.S. Centers for Disease Control and Prevention confirmed the country’s first case — a Washington state man who has been quarantined in a hospital outside of Seattle after flying back from Wuhan, where the outbreak was first reported. The CDC said the man reached out to local health authorities last week once he started experiencing pneumonia-like symptoms.

U.S. health officials warned on Friday that the flu or other respiratory illnesses could complicate identifying more cases. They recommend that people call a health-care provider before seeking treatment so the appropriate measures can be put in place. The CDC is trying to speed up testing and to get the tests in the hands of state health officials. It currently takes the CDC about four to six hours to make a diagnosis once a sample makes it to its lab.

“We’re really working to understand the full spectrum of the illness with this coronavirus,” Messonnier said. “The problem with this time of year is it’s cold and flu season and there are lots of cold and respiratory infections circulating.”

On Thursday, the World Health Organization declined to formally designate the new virus as a global health emergency, after postponing its decision the day before. Health officials are trying to contain the fast-spreading illness without unnecessarily spooking global trade. WHO physicians said they needed more data before declaring a global emergency, but the virus is now spreading through close human contact and in health-care settings, they said.

Coronaviruses are a large family of viruses that usually infect animals but can sometimes evolve and spread to humans. Symptoms in humans include fever, coughing and shortness of breath, which can progress to pneumonia.

U.S. officials began screening passengers flying from China at major international airports over the weekend. Health officials said Friday that they have screened more than 2,000 people across 200 flights and have not found any cases.

In China, some 33 million people are now under travel restrictions. Shanghai Disney is closing until further notice at a time when theme park would normally be packed with tourists during Saturday’s Lunar New Year holiday.

Physicians have compared the outbreak to the 2003 outbreak of SARS, which had a short incubation period of two to seven days. U.S. officials said Friday that symptoms from the new virus, temporarily named 2019-nCoV, may take up to 14 days to appear. Neither U.S. patient had symptoms while they were flying, U.S. health officials said.

Former FDA Commissioner told CNBC on Friday the fast-spreading coronavirus outbreak is likely more contagious but less severe than the SARS epidemic, which rattled markets and slowed global economic growth.

“We probably will have some isolated outbreaks [of coronavirus in the U.S.], but that doesn’t mean it’ll translate to an epidemic,” Gottlieb told “Squawk Box.”

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China’s Hubei province confirms 15 more deaths due to coronavirus

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A militia member checks the body temperature of a driver on a vehicle at an expressway toll gate in Wuhan in central China’s Hubei province Thursday, Jan. 23, 2020, in a bid to contain the spread of the new coronavirus.

Barcroft Media | Getty Images

China reported 15 more deaths and 180 new cases of coronavirus, according to a statement from the health department of Hubei province, as the outbreak escalates.

The outbreak that began in Wuhan, capital of Hubei province, has prompted China to ramp up measures to contain the virus including suspending public transport in 10 cities, shutting temples over the Lunar New Year and closing part of the Great Wall.

The newly identified coronavirus has created alarm because there are still many unknowns surrounding it such as how dangerous it is and how easily it spreads between people. It can cause pneumonia, which has been deadly in some cases.

China closed Shanghai Disneyland and part of the Great Wall and suspended public transportation in 10 cities as it rushed to contain the virus, stranding millions of people at the start of the country’s Lunar New Year holiday.

France reported three cases on Friday evening, the first ones discovered in Europe. More were likely, Health Minister Agnes Buzyn said.

Wuhan, a city of 11 million where the virus was first identified, is in virtual lockdown. Nearly all flights at Wuhan’s airport have been canceled and checkpoints block the main roads leading out of town. 

As the city slides into isolation, pharmacies have begun to run out of supplies and hospitals have been flooded with nervous residents. The city is rushing to build a 1,000-bed hospital by Monday, state media said.

Despite the lockdown, the virus is already spreading further afield.

The vast majority of the cases and all of the deaths have been in China, but it has also been detected in Thailand, Vietnam, Singapore, Japan, South Korea, Taiwan, Nepal and the United States. There is no vaccine or specific treatment for the new virus.

The U.S. Centers for Disease Control and Prevention said on Friday it had 63 patients under investigation, with two confirmed cases, both in people who had traveled to Wuhan.

Following a congressional briefing by health officials, Republican U.S. Senator John Barrasso, a former physician, said people in the United States with the virus may have been infected up to 14 days ago in China.

“We want to try to stop and prevent people from coming to the United States if they have it,” Barrasso told reporters, without providing details of how that might be accomplished.

Airports around the world have stepped up screening of passengers from China.

The newly identified coronavirus has created alarm because there are still many unknowns surrounding it such as how dangerous it is and how easily it spreads between people.

It can cause pneumonia, which has been deadly in some cases. 

Symptoms include fever, difficulty breathing and coughing. Most of the fatalities have been in elderly patients, many with pre-existing medical conditions, the World Health Organization said.

As of Thursday, China’s National Health Commission said there were 830 confirmed cases and 26 deaths.

‘Sense of urgency’

Most cases have been in Wuhan, where the virus is believed to have originated in a market that traded illegally in wildlife.

As China scrambles to contain the outbreak, it has suspended transportation in 10 cities in the central province of Hubei, where Wuhan is located, the Hubei Daily reported.

The country will take further, more targeted measures, state television reported, citing a State Council meeting on Friday. It did not give further details.

“Local authorities should take more responsibility and have a stronger sense of urgency,” state broadcaster CCTV said.

Week-long celebrations to welcome the Year of the Rat began on Friday, raising fears that the infection rate could accelerate as hundreds of millions of people travel to see family at home and abroad.

In Wuhan, a handful of people got off a high-speed train that pulled into the city’s station on Friday but nobody boarded.

“What choice do I have? It’s Chinese New Year. We have to see our family,” said a man getting off the train who gave his family name Hu.

As part of the restrictions, some sections of the Great Wall near Beijing will be closed from Saturday, state media said.

Beijing’s Lama Temple, where people traditionally make offerings for the new year, has closed, as have some other temples and the Forbidden City, the capital’s most famous tourist attraction.

Shanghai Disneyland will close starting on Saturday. The theme park has a 100,000 daily capacity and sold out during last year’s new year holiday.

Film premieres have been postponed and McDonald’s suspended business in five cities in Hubei province.

“There’s so much news, so much data, every 10 minutes there’s an update, it’s frightening, especially for people like us in a severely hit area,” Lily Jin, 30, a resident of Wuhan, told Reuters by phone.

Vaccine quest

The WHO said on Thursday it was a “bit too early” to designate the outbreak a public health emergency of international concern, which would require countries to step up their response.

That decision could well be reassessed in coming days as the situation evolves, said Anthony Fauci, the U.S. National Institutes of Health’s top infectious disease official, adding that it was “open to question” whether shutting down travel would have a major effect.

“The mass involuntary quarantine in Wuhan and its neighboring cities is counterproductive,” added Lawrence Gostin, a public health expert at Georgetown University Law School in Washington. “A lockdown of Wuhan will drive the epidemic underground, provoking fear and panic.”

Some experts believe the virus is not as dangerous as the one that caused the 2002-03 outbreak of Severe Acute Respiratory Syndrome (SARS), which also began in China and killed nearly 800 people, or the one that caused Middle East Respiratory Syndrome (MERS), which has killed more than 700 people since 2012.

Three international research teams – using different approaches – have begun work on vaccines, the Coalition for Epidemic Preparedness Innovations said.

Markets have been roiled this week on fears that the outbreak will curb travel and hurt economic demand. Shares in luxury goods companies have been particularly hard hit on fears of a drop in demand from China.

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