Before The Bell
The final trading day of the month of January was dominated by the bears, and capped off a 31-day stretch where investors saw a pickup in volatility. After a tranquil start to the New Year, the volatility picked up when geopolitical tensions escalated between the United States and Iran. The markets then settle down a bit before the volatility resumed over the final fortnight when reports about the outbreak of the coronavirus (more below) and subsequent deaths unnerved investors. In addition to the health concerns, Wall Street is worried about what impact the spreading virus will have on the health of the global economy, particularly China’s GDP, which was already weakened by the trade disputes with the United States that began on March 1, 2018. For the month, Wall Street delivered a mixed performance. The Dow Jones Industrial Average was down 1.0%, while the technology driven NASDAQ Composite advanced 2.0%. The broader &P 500 Index was relatively flat (-0.2%).
The most recent five-day stretch of trading on Wall Street went to the bears, but heading into the final session on Friday it was back-and-forth affair between the bears and the bulls. Over the course of the five trading days, investors weighed the mostly positive earnings results from Corporate America against the concerns about the spreading coronavirus (the virus has infected more than 10,000 individuals and resulted in more than 300 deaths in China). On Friday the latter event was front and center on the minds of investors, especially with the reports of eight confirmed infected individuals in America, and the major equity averages delivered their worst performance since early last fall. For the day, the Dow 30, the NASDAQ Composite, and the S&P 500 Index were down 603, 148, and 58 points, respectively. The selling was broad-based, with declining issues far outpacing advancers and all of the 10 major equity groups finishing in negative territory. The biggest laggards were the economically sensitive technology, industrial, and basic materials sectors. Clearly, there was a “flight-to-safety” strategy among investors, as the demand for bonds and gold picked up meaningfully, and investors also were looking at the more-defensive higher-yielding equities.
The worries about the coronavirus spreading across the globe has caught the attention of Wall Street. So much so, that the volatility in the U.S. stock has spiked despite what has been a mostly positive and supportive fourth-quarter earnings season. Last week, Wall Street received very good earnings results from technology behemoths Apple (AAPL – Free Apple Stock Report) and Amazon.com (AMZN), with the latter company’s market cap topping the $1 trillion market-cap market on a more than $200-per-share advance during Friday’s bearish session. The week included 14 reports from Dow-30 companies, with the majority of the components reporting positive data. The earnings news will start to slow down some this week, with only two Dow-30 companies - The Walt Disney Company (DIS – Free Walt Disney Stock Report) and Merck & Co. (MRK - Free Merck Stock Report) - scheduled to report reports quarterly results.
We will also get some important data from the business beat, including reports on manufacturing and nonmanufacturing activity, and employment and unemployment. The latter report will be closely monitored by the investment community after the Federal Reserve left interest rates unchanged at its monetary policy meeting last week. We also will get some prepared commentary from Federal Reserve leaders this week.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are presaging some bargain hunting in the U.S. stock market after Friday’s sharp selloff. Driving the trading stateside and on the Continent is again news about the coronavirus. Investors are reacting positively to news that China’s central bank is taking measures to limit the impact of the deadly coronavirus, which has nearly halted the world’s second-biggest economy. Specifically, the People’s Bank of China announced several steps aimed at stabilizing the economy, as China’s stock markets reopened after the extended Lunar New Year holiday. The trading overnight in Asia was not pretty, as the Shanghai Composite retreated nearly 8% on the worries about the deadly coronavirus. 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.
