Weekly market update
Stocks finished the week down as fears grew about the Coronavirus. The Dow fell 1.36%, the S&P 500 fell 1.22% and the NASDAQ dropped 1.55%.
Investors had pushed the Dow, the S&P 500 and the NASDAQ to all-time highs in recent weeks while playing down the effect of this virus on the global economy. We have learned that some of the largest companies in the world are lowering their earnings guidance due to it. Burberry said that the virus has wiped out three-quarters of its sales in China and Range Rover said sales are being disrupted in China – they actually said there were NO sales. And then there’s Apple. Global stocks tanked after Apple warned that the virus is hammering sales in China and it is not just sales – they along with everyone else who does business in or with China is seeing some level of business disruption. Nearly half of China’s population, 780 million people, are under some sort of travel restrictions or quarantine. Many towns are completely shut down due to this virus. China deployed 40 mobile incinerators to Wuhan.
Earnings season is for the most part over with the exception of a few retailers that will report this week and what we have seen was better than they were expected to be. But this virus has ruined for investors what was solid earnings and is casting a pall on forecasts for the rest of the year. Expectations for Q1 earnings growth have been slashed in half to just 3.2% from 6.3% at the start of 2020.
Bonds have certainly taken notice. The 30-year U.S. Treasury hit an all-time low yield of 1.91% on Friday and the 10-year was trading at 1.47%. That, of course, is in the past because as of this writing the 30-year is at 1.82% and the 10-year is at 1.36%. If you haven’t refinanced, now may be the time. The way these bonds are trading as if they are pricing at the end of civilization – eventually it will be good for stocks because where else are you going to go.
On the economic front, Philly, Dallas, and New York Fed reports were better than expected, but that was January numbers. U.S. business activity fell this month for the first time since 2013 as the virus started hitting supply chains and made firms hesitant to place orders, a warning sign that the outbreak is starting to dent the world’s largest economy.
This week we get a good bit of economic data, but I can tell you it will not matter. The only thing that is going to matter is how many more cases of “the flu” are announced and where it shows up next. But it’s like a snowstorm in Minnesota – you wonder if the sun will ever come out, but it will. Please stay tuned and we will keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
