The news from China and about the coronavirus continues to get worse. The death toll has climbed to 82, and at least 2,800 cases have been reported in China.
And it doesn’t look like the outbreak has been contained with health experts questioning the efficacy of any quarantine and the mayor of Wuhan, the likely source of the virus, saying that 5 million people have already left his city for the Lunar New Year’s holiday.
One widely reported assessment of the impact of the virus, says that with a 90% quarantine, there will still be 59,000 cases of infection and 1,500 deaths. That would be twice the total in the 2002-2003 SARS pandemic. I’d note that this assessment comes after earlier assessments that this coronavirus was less frequently fatal than SARS. In the words, scientists are still struggling to get a handle on key assumptions about infectiousness and the period between when people contact the disease and when they start showing symptoms.
In the financial markets what I’ve seen is that a down day has turned even more negative as it progresses. The Standard & Poor’s 500, for example, was down 1.15% at 1:30 p.m. New York time but down 1.39% at 3 p.m. I see the same pattern in the NASDAQ Composite (down 1.45% at 1 p.m. and 1.75% at 3 p.m.) The iShares Emerging Markets ETF (EEM) was down 3.23% at 3 p.m. The Technology Select Sector SPDR ETF (XLK) was off 2.21%.
I’m not seeing a huge rush for the safety of gold. The SPDR Gold Shares ETF (GLD) was higher by 0.82% as of 3 p.m. Treasuries are a major beneficiary of a search for safety with the price of the 10-year Treasury climbing to drive down the yield to 1.60% as of 3 p.m. On January 16, the 10-year Treasury yielded 1.81%. A 20 basis point move in a week is a huge shift for the Treasury market.
I am seeing a significant broadening of what’s being sold today. China stocks directly affected by the virus outbreak continue to be sold with China Southern Airlines (ZNH) down another 7.19% today and JD.Com off 2.78%.
But as I wrote in my Friday Trick or Trend post on my JubakAM.Com subscription site, I see investors and traders using the coronavirus-related selling as an excuse to take profits in their big winners. SolarEdge Technologies (SEDG), for example, is down 11.76% today. There is a connection between China and solar demand, but to me the selling looks more related to the stock’s huge 173.78% gain, as of Friday, January 24, over the last 12 months. Sitting on profits like that investors and traders who hold the stock decided to sell. Other big recent winners such as Nvidia (NVDA), up 27.32% in the last three months, are also down hard today (off 4.48%.)
Stocks that delivered good earnings news last week, such as Intel (INTC) are also off today (down 3.58%) as traders and investors take their profits and move to the sidelines.
Remember that we’ve got two things, at least, going on in this market at once. First, this is a pivotal December quarter earning season with Wall Street watching to punish any stock that lowers revenue and earnings guidance for the current first quarter. (Apple reports influential earnings tomorrow January 28. Facebook (FB) reports on January 29.) Second, this is a market that is thoroughly spooked by the coronavirus outbreak (the VIX “fear” index is up almost 20% today to 17.36.)
I don’t expect that the coronavirus fear will begin to dissipate from the market until the headlines show the spread of the disease to be slowing. (Which seems tremendously obvious. But my point is that fear will start to leave the markets before anyone declares the pandemic over.) At which point the message of earnings season, whatever it has turned out to be, will have a chance to emerge from this chaos.