After The Close
The stock market started in the red today, after the three day holiday weekend, on news that the coronavirus outbreak was worse than expected in China. Meantime, Apple (AAPL – Free Apple Stock Report) stated that the contagion would impact its operations and sales in the first quarter. This sent the market lower in early trading with the Dow Jones Industrial Average lower by as much as 281 points. However, the market became oversold, which caused the indices to rebound and retake a substantial portion of the day’s losses. The NASDAQ even reached the green for a brief spell.
The final part of the day was a small move lower. All told, the Dow closed down 166 points, the S&P 500 was lower by 10 points, and the NASDAQ closed up two points.
Moreover, market breadth was slightly negative, with decliners outpacing advancers by a 1.4-to-1.0 ratio. Utility stocks were among the best performers of the day, aided by a decline in interest rates.
Meantime, financials were among the worst, hurt by the aforementioned decrease in interest rates.
In commodity news, oil prices were modestly higher, as traders think that OPEC oil cuts will help offset some of the declines in demand from China, which has seen a slide in oil usage of up to 4 million barrels per day. Meantime, U.S. Treasury bond yields were lower across the board as traders moved into the safe-haven asset. Too, the yield curve flattened a bit, which usually is a negative for financial earnings.
Meantime, the VIX Volatility Index was higher as demand for options protection increased some.
Looking ahead, tomorrow will have a good amount of economic data released, including the housing starts and building permits for January. Additionally, the producer price index for January is on the docket. Meantime, several large companies are slated to report quarterly results, both after the bell today, and before the open tomorrow. Overall, we think that any developments in the course of the coronavirus will affect trading tomorrow.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The penultimate trading week of February—one that will be an abbreviated edition with the U.S. stock and bond markets closed yesterday in observance of Presidents Day—will commence with the major equity indexes standing at or near record highs. Last week, the bulls held the upper hand, even with two lackluster performances to end the week; the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 Index all finished with weekly gains of 1%. On Thursday and Friday, the major averages traded sideways, as investors took a bit of a breather fresh off a hectic fortnight of trading when they were forced to digest a plethora of market-moving news, in the form of the coronavirus epidemic, fourth-quarter earnings season, economic data, and commentary from the Federal Reserve.
Indeed, the most recent five-day stretch of trading was again dominated by the reports on the coronavirus. Wall Street remains concerned about what impact the deadly virus, which has taken many lives in China and is spreading to other parts of the world, will have on the health of the global economy. Last week, investors took some comfort in reports that a vaccination has been developed, but getting the medication to infected patients will take some time and the fears of the deadly virus spreading will have a negative effect on consumer spending, particularly in Asia. Prevailing sentiment is that the virus will wallop China’s and Japan’s economies, and the fallout will extend to other parts of the world. On Friday, Germany reported GDP data and warned that the virus will affect its trading with Asian partners and hurt its output in 2020. Our sense is that this scenario, while not good for the near-term health of the global economy, is helping the U.S. stock market, as it is being seen as a safe-haven for jittery investors. The major U.S. indexes continue to outperform the other world indices, particularly those in the euro zone and China. This situation remains highly fluid though, and can thus change on a dime, so any pickup in volatility can’t be ruled out. This seems to be the case this morning on Wall Street (see below).
Looking ahead to the new trading week stateside, the bulk of the fourth-quarter earnings season is in the record books and, for the most part, it was a good one for Corporate America, The large majority of the S&P 500 companies reported results that either met or exceeded Wall Street’s expectations. We think this played a huge role in supporting the U.S. equity averages during a stretch when the coronavirus has given the bears some ammunition. Investors, though, should note that a number of earnings reports from the major U.S. retailers, including The Home Depot (HD – Free The Home Depot Stock Report), are scheduled to trickle in over the next fortnight. And just minutes ago, mass merchandiser Walmart Inc. (WMT – Free Walmart Stock Report) reported fourth-quarter results. Specifically, the Dow-30 component reported adjusted share earnings of $1.38, which fell short of the Wall Street consensus, on lighter-than-expected revenues of $141.67 billion. The retailing behemoth blamed the top-line miss on a short holiday shopping season and weaker-than-expected sales in December. Likewise, Walmart issued a fiscal 2020 outlook that came in shy of analyst expectations. Walmart shares, however, are slightly higher in pre-market action.
This week also will bring some news on the economy that will primarily have a housing market bent to it. Indeed, we will get the latest figures on housing starts and building permits (tomorrow) and existing home sales (Friday). The housing data will provide a good look into how the U.S. economy is doing. So far this month, the reports on employment and unemployment, manufacturing and nonmanufacturing activity, industrial production, and retail sales have made for good readings and provided some support for the stock market. Investors also should note that we will get more clues to how the Federal Reserve views the U.S. economy with the minutes from the latest FOMC meeting to be released at 2:00 P.M. EST tomorrow. Our sense is that the central bank will continue on its current accommodative monetary course, given the recent worries about the coronavirus on the health of the global economy. In prepared remarks before Congress last week, Fed Chairman Jerome Powell said the U.S. economy is growing modestly and inflation remains benign, which should allow for the lead bank to stay on its current monetary course.
With less than an hour to go before the start of the new trading week on the homeland, the equity futures are indicating a lower opening for the U.S. stock market. Trading once again will likely be driven by news on the coronavirus. Specifically, Apple (AAPL – Free Apple Stock Report) warned it would not be able to meet its previously issued March-quarter revenue guidance of between $63 billion to $67 billion. The technology giant mentioned a slower-than-expected ramp-up of its supply chain in China after extended factory closures, as well as weakened demand from Chinese consumers due to the coronavirus, for the gloomier near-term outlook. Apple joins an expanding list of companies that have warned about the impact of the deadly coronavirus to quarterly results. Given this news, it is not surprising that we are likely to see some profit taking at the get-go in a market that is currently trading in rarified territory. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
