Infectious

Infectious.  Stocks pulled back yesterday after the CDC reported its first case of the Chinese Coronavirus.  Boeing announced that its 737 Max would return to service later than expected, upsetting investors yet again.

N O T E W O R T H Y

• Employees must wash their hands…It takes a lot to derail the market when the bulls are running…and they’re a-running.  Markets opened soft yesterday after the Martin Luther King Jr. Holiday but quickly began to regain ground.  Boeing announced that the 737 Max would not re-enter service until at least the second half of 2020 upsetting investors… and the Dow Jones Industrial Average of which Boeing (BA, down -1.33%) is a member. Trump spoke in Davos about his handiwork in creating “an economic boom the likes of which the world has never seen before” to no applause except maybe Larry Kudlow and Stephen Mnuchin.  Side note: stock markets are booming, the economy not so much.  Still the broader indexes were gaining ground and then, out of nowhere, news from the CDC hit the tape.  The first case of a Chinese super-virus known as the Wuhan or Coronavirus was confirmed in Washington State.  The virus, which originated in Wuhan Provence, China is responsible for at least six deaths and has rapidly spread across Asia with more than 300 confirmed cases in China.  Markets quickly sold off on the news as traders, who are old enough, recalled the SARS outbreak in 2002/2003.  During the outbreak the S&P500 fell by -17% and it is estimated that the global economy lost as much as $40 billion in 2003 as a result.  More recently, you may recall the Ebola outbreak of 2014-2016.  While there were many factors impacting markets during that period, the outbreak was certainly a factor in the markets’ poor performance in 2015, specifically in the travel and hospitality sectors.  So let’s put things into perspective now.  This newly emerging virus is not yet considered a global pandemic and the WHO has not classified it as a public health emergency, though it is carefully being monitored.  Yesterday’s losses in the stock market were most apparent in travel and hospitality, as would be expected and stocks have since recovered overnight WHILE YOU SLEPT as China announced strict rules to contain the outbreak.  Still it is important to note that travel between China and the US is far more fluid than it was in 2003.  The good news is that monitoring and containment techniques are more advanced today.  The highest potential impact on the market is to the Chinese economy which, as we have recently been enlightened, can actually impact the US economy.  Restricted travel and diminished consumer confidence in China could impact economic growth at a time where the Chinese economy is already on its heels.  For now, it appears that a good night’s sleep, and maybe some Aspirin, was enough to get the buyers back on their feet for today’s session.
• Drinking the Kool-Aid.  We are at week 3 into 2020 and the S&P500 is already up by +2.79% YTD.  In case you haven’t noticed: this is a bull market.  I am sure that there is an official definition for the term bull market.  I tend to use it to describe indiscriminate buying as investors rush into me-too trades which cause more and more panic buying. Alan Greenspan was famous for inventing the term “irrational exuberance”, but I think “indiscriminate exuberance” is a bit softer.  I have wrote about stock valuations being on the high side compared to earnings multiples in the past.  That is one sign that investors are really counting on great things in the months ahead. But if you take a look at what they are buying, you get further perspective (or color as we refer to it on Wall Street).  The speculative and growth oriented Information Technology Sector is up by +5.78% year to date while the more conservative Consumer Staples and Industrials are up by +1.83% and +2.4% respectively and the Materials Sector is down by -1.55%. Want further proof?  Take a look at last year’s Unicorn IPO’s.  Though nothing has changed from a fundamental perspective, Beyond Meat, Uber, Lyft, and SmileDirectClub are up +70.78%, +26.43%, +11.53%, and +45.65% year to date respectively.  Great things must be in store for them, indeed.

THE MARKETS

Stocks sold off on a report that the first case of Novel Coronavirus, originating from China, was confirmed in the United States.  The S&P500 sold off by -0.27%, the Dow Jones Industrial Average dropped by -0.52% held down by Boeing, the Russell 2000 trade down by -0.81%, and the NASDAQ Composite Index slipped by -0.19%.  Bonds advanced and ten-year treasury yields fell by -5 basis points to 1.77%.

NXT UP

– FHFA Housing Price Index is expected to have grown by +0.3% month over month compared to last month’s growth of +0.2%.

– Existing Home Sales may have grown by +1.5% month over month compared to the prior month’s drop of -1.7%.

– This morning Baker Hughes and Johnson & Johnson beat estimates and we will hear from Amphenol and Ally Bank before the bell.  After the close we will get results from Texas Instruments and Citrix Systems.

daily chartbook 2020-01-22