Monthly Archives: February 2020

The Dow just lost 12% in one week. Here’s why and what likely happens next

Traders work on the floor of the New York Stock Exchange, January 27, 2020.

Spencer Platt

The U.S. stock market suffered a historic pullback this week as the coronavirus spread outside of China, spooking investors and traders out of equities.

The Dow Jones Industrial Average and S&P 500 each dropped 12% and 11% for the week, respectively, marking their worst weekly performance since the financial crisis. The 30-stock Dow posted its biggest one-day points loss ever on Thursday. It also tumbled deep into correction territory, down more than 10% from a record high, along with the S&P 500 and Nasdaq Composite.

Wall Street’s historic shake-up came as worries grew over the coronavirus’ impact on the global economy and corporate profits. The number of new cases in China kept rising this week, while the number of people contracting the virus spiked in South Korea and Italy. This led a slew of companies to issue warnings about their earnings. It also dampened the market outlook for investors worried it could become widespread in the U.S. soon.

“When people don’t know how to quantify things, which is really where we’re at right now, the first reaction in the market is to sell first and figure things out a bit later,” said JJ Kinahan, chief market strategist at TD Ameritrade.

What happened?

The Dow posted two declines of more than 1,000 this week. Thursday’s loss of 1,192 points was the Dow’s biggest one-day point loss on record. The 30-stock average also ended the week down 14% from a record high.

The S&P 500, meanwhile, posted declines of more than 2% in three of the five sessions this week. Before then, the broad market index had not logged in a decline of that magnitude since August. The U.S. stock benchmark concluded the week nearly 13% below a record high set on Feb. 19. That marks the average’s fastest decline from a record high into a correction ever, outside of a one-day crash.

“The longer this [coronavirus] stays in the minds of market participants, the greater the impact’s going to be not only on the markets, but the economy,” said Dan Deming, managing director at KKM Financial. “That’s why we see these gyrations.”

The market also took a beating this week on an individual stock basis. Only two S&P 500 components — Regeneron Pharmaceuticals and Qorvo — closed higher for the week. Meanwhile, 96% of the entire S&P 500 is in correction territory.

All 30 Dow members ended the week down more than 10% from their respective 52-week highs. Tech giant Apple even dipped into a bear market, briefly trading down more than 20% from its intraday record set on January.

“What we’ve seen the last couple of days is pure liquidation,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “Investors are saying ‘get me out at any cost.'”

“The most important dynamic in the market is uncertainty,” Lerner added. “People are selling first and asking questions later.”

Traders and investors sought protection from the stock market’s decline by loading up on U.S. Treasurys and hedging through options.

The benchmark 10-year Treasury yield broke below 1.15% for the first time ever on Friday. The rate started the week hovering around 1.4%. Meanwhile, Wall Street’s so-called fear gauge — the Cboe Volatility Index (VIX) — surged to 49.15, its highest intraday level since February 2018.

Why it happened?

The number of confirmed coronavirus cases in South Korea jumped this week to more than 2,300. That makes it the country with the most confirmed cases outside of China, where the virus’ death toll is now more than 2,700. In Italy, the number of people infected reached more than 600. Cases in Iran, New Zealand and Nigeria were also reported this week.

The number of cases spiking, especially outside of China, raised concern of a prolonged global economic slowdown and spooked investors out of stocks. That uncertainty also led some companies to caution investors about the virus’ impact on their numbers.

Microsoft said Wednesday its current-quarter revenue guidance for its personal computing division — which accounts for 36% of the company’s overall sales — would not be met as the coronavirus slows down its supply chain. PayPal warned Thursday that the coronavirus will negatively impact its revenue forecast. Mastercard said Monday the virus could dent its 2020 revenue.

These factors combined for head-turning declines and wild volatile swings.

What happens next?

Market participants will look for signs of a bottom after the week’s massive downturn.

Since World War II, the S&P 500 has had 26 market correction (excluding the one that started this week). During those corrective periods, the S&P 500 has declined by an average of 13.7% and has taken about four months to recover. That’s of course if they don’t turn into bear markets.

Larry Benedict, CEO of The Opportunistic Trader, thinks stocks are currently cheap enough for investors to go bargain hunting.

“I think the bottom is in for this trade,” he said. “The markets washed out in a big way. I don’t think we come out here in a straight moonshot, but potentially we get a bit of stabilization and a bit of an uptrade here.”

Benedict pointed out that stocks such as Exxon Mobil are trading at a significant discount. Exxon shares have fallen almost 40% from their 52-week high.

Still, Jeff Chang, managing director at Cboe Vest, thinks investors should remain cautious.

“Historically, we’ve seen an elevated level of volatility after a higher volatility spike like this one,” Chang said. “So I would expect choppier markets moving forward.”

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Stock rout may deepen in the week ahead as coronavirus impact starts to show up in economic data

Traders work at the New York Stock Exchange in New York, the United States, on Jan. 8, 2020.

Xinhua News Agency

Stock investors just experienced one of the nastiest weeks in history that recorded the S&P 500’s fastest correction on record, but hold on tight, the market might have more room to fall as the coronavirus damage starts to creep into upcoming economic data, analysts warned.

Major U.S. stock averages suffered their worst week since the financial crisis as fears about the coronavirus disrupting the global economy scared investors away from risk assets. However, stocks might still be searching for a bottom next week when investors grapple with a slew of economic data potentially dragged down by the outbreak.

The Institute for Supply Management will release its manufacturing gauge on Monday. Meanwhile, the Federal Reserve will publish its latest Beige Book on Wednesday, which will detail anecdotal information on current economic conditions. Many expect U.S. manufacturing to have taken a hit from the coronavirus.

“Look out for ISM surveys and Beige Book for early signs of COVID-19 impact,” Michelle Meyer, Bank of America’s head of U.S. economics, said in a note Friday. “It will take time for the ‘hard’ economic data to show the impact but we are already seeing evidence in early economic indicators.”

Weekend action?

The outlook for the week could be changed this weekend by coronavirus headlines or by some sort of intervention by central banks. Expectations are rising on Wall Street that there could be some potential move from the Federal Reserve to get ahead of what could be another rough week.

Fed Chairman Jerome Powell said Friday the central bank is monitoring the coronavirus and pledged action if necessary. Meanwhile, former Fed Governor Kevin Warsh recommended the Fed act as quickly as Sunday before the markets reopen. The market is already pricing in a 100% chance of at least one rate cut at the Fed’s March policy meeting.

Jim Paulsen, chief investment strategist at the Leuthold Group, is worried about the cascading effect of coronavirus hitting upcoming economic data points. “ISM manufacturing is going to be widely scrutinized,” he said.

The ISM manufacturing index rose to a reading of 50.9 last month, the highest level since July (Any reading above 50 signals expansion.) Bank of America expects ISM manufacturing to pull back to 50.0 and said Fed Beige Book may provide “early insight” into the U.S. economic impact from the deadly virus.

Cutting forecasts

Next week, investors will also likely grapple with more warnings from major companies about broken supply chains and easing demand due to the outbreak.

Apple, Microsoft, Nike and United Airlines have all sounded alarms that they will not meet their earnings and revenue guidance because of the virus.

Wall Street strategists this week were quick to slash their forecasts on corporate earnings and the stock market. Barclays sees the S&P 500 to end the year at 3,000, down from a previous forecast of 3,300. The bank also expects a 2% drop in profits this year. Meanwhile, Goldman said it sees zero earnings growth for American companies in 2020.

To be sure, some believe the steep stock rout has gone too far too fast, betting on at least a small rebound.

“The level of panic has become very extreme and the level of downside price movement is pretty extreme. All of that is to me more of a sign that we are getting closer to the beginning of the end of it,” Paulsen said.

Another source of support could come from the Trump administration, where officials are discussing tax cuts, among other economic reactions, as one option to make up for the economic impact of the coronavirus, the Washington Post reported Friday.

Still, investors will have to be on edge for a while now with more virus headlines, as well as the key Super Tuesday Democratic primaries. Some notable investors including “bond king” Jeffrey Gundlach blamed the rise of Democratic presidential hopeful Bernie Sanders for helping accelerate massive sell-off.

Week ahead calendar

Monday

10:00 a.m. Construction spending

10:00 a.m. ISM manufacturing

Tuesday

Earnings: Target, Kohl’s, Nordstrom

6:30 p.m. Fed president Charles Evans speaks

Super Tuesday primaries

Wednesday

Earnings: Zoom Video

8:15 a.m. ADP employment

10:00 a.m. ISM non-manufacturing

10:00 a.m. Treasury secretary Steven Mnuchin testifies to House Appropriations Committee on budget

2:00 p.m. Beige book

Thursday

Earnings: Kroger

8:30 a.m. Nonfarm productivity

8:30 a.m. Productivity & costs

10:00 a.m. Factory orders

10:00 a.m. Durable goods orders

Friday

8:30 a.m . Trade balance

8:30 a.m. February jobs report

10:00 a.m. Wholesales inventories

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US stocks erase $3.18 trillion in value this week amid coronavirus tailspin

A trader reacts on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 5, 2019.

Brendan McDermid | Reuters

The coronavirus wiped $3.18 trillion in market value from U.S. stocks this week, according to estimates from S&P Dow Jones Indices.

The equity benchmark lost $203 billion in value on Friday, adding to its $2.997 trillion loss from Monday to Thursday, the firm’s Senior Index Analyst Howard Silverblatt told CNBC. The S&P 500 index has lost $3.58 trillion in value from its Feb. 19 high.

Stocks cratered again on Friday as investors fled riskier assets amid intense fears about a slowdown in global growth caused by the deadly coronavirus. All three major average ended the week deep in correction territory, more than 10% off their most recent highs. The Dow Jones Industrial Average lost nearly 3,500 points since Monday.

The spreading deadly virus has sent shock waves through the markets. Companies like Microsoft, Apple, Nike, United Airlines and Mastercard have all raised flags about the coronavirus and its impact on their earnings.

Stocks got a slight reprise when Federal Reserve Chairman Jerome Powell said Friday the central bank is monitoring the coronavirus for risks it poses to the U.S. economy and pledged action if necessary. Right after that, a report from the Washington Post said the Trump administration is entertaining the idea of tax cuts to combat the economic impact of the coronaviorus. Stocks ended the day off their lows, banking on some sort of central bank or government response over the weekend.

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The sell-off is sparing only a handful of stocks, with Clorox among them

Colorox brand toilet bowl cleaner sits on display at a supermarket in Princeton, Ill.

Daniel Acker | Bloomberg | Getty Images

Consumer-staples giant Clorox, along with 10 other stocks have emerged as the definitive anti-coronavirus trades, as the only S&P 500 stocks avoiding correction territory.

While the broader market craters, the well-known maker of bleach and disinfection wipes is only 8.5% off its most recent high. Before the marketed open on Friday, Clorox was positive for the week. This compares to the S&P 500’s near 12% plunge since Monday. Regeneron Pharmaceuticals is also being spared, as the only S&P 500 stock that is positive for the week.

It’s been a dismal week for stocks as fears of a possible pandemic escalate, with cases of the new coronavirus surging outside China. All three U.S. stock averages are deep in correction territory, and the Dow and S&P 500 are on pace for their worst week since the financial crisis. The Centers for Disease Control confirmed the first U.S. coronavirus case of unknown origin in Northern California on Wednesday and California Gov. Gavin Newsom said Thursday the state is monitoring 8,400 people for coronavirus.

Meanwhile, a handful of stocks are being spared, and they are all plays on the coronavirus. Consumers are turning to Clorox products for preventative measures against the spreading deadly virus.

“The recent tragic outbreak of Coronavirus is likely to drive demand for Clorox’s cleaning products,” Consumer Edge Research senior analyst Jonathan Feeney wrote to CNBC in an email. “Unlike other areas of virus preparedness that are one-time in nature, the anticipated pantry load and increased trial…hold promise to drive new usage and potential repeat, a lasting benefit to CLX.”

Of the 16 Wall Street analysts that cover the stock, Consumer Edge has one of the only two buy ratings on Clorox, according to FactSet. The firm has a $173 per share 12-month price target.

Streaming platform Netflix, which promotes staying in bed and binge watching television, is only down 3.9% this week. The “stay-at-home” stocks theme has emerged as trading narrative this week, like in-home cycling company Peloton and video conferencing provider Zoom Video.

Exchange company Cboe Global Markets, is benefiting from the surge in trading this week, as U.S. stocks lost $4 trillion in value ahead of the open on Friday. Cboe, the creator of the commonly used fear gauge or Volatility Index, said it has seen elevated volumes in its VIX futures products, according to Piper Sandler.

Health, clinical research and biotech companies are also in focus as they rush to find a treatment for the deadly coronavirus. Regeneron Pharmaceuticals, Quest Diagnostics and Allergan are all less than 10% from their recent high. Steris, one of the leading providers of infection prevention, is only down 5% this week.

Home construction company NVR could be getting a boost from the low interest rate environment, which could boost refinancings. Bonds yields have plunged this week as investors seek safe havens amid the massive uncertainty.

Tiffany& Co., the stock that is least from its 52- week high, is being sparred mainly because it is being acquired by luxury brand company LVMH.

— with reporting from CNBC’s Michael Bloom.

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