28 Hours Later

28 hours later.  Stocks posted a mixed close yesterday as worries over the Coronavirus faded. Housing continues to shine as Existing Home Sales jumped last month, the strongest in almost two years.

 

N O T E W O R T H Y

 

28 weeks later.  I am not referring to the 2007 cult horror classic film about the aftermath of a virus outbreak which caused zombies to romp across the English countryside… or maybe I am!  While there haven’t been any reports of zombies yet, news about the new Coronavirus certainly infected the market, causing stocks to sell off on Tuesday.  Yesterday, China announced that it had banned all outbound travel from Wuhan, which is thought to be the epicenter of the outbreak.  The markets were somewhat soothed by the news of the Chinese government’s attempt to prevent further spreading.  The World Health Organization has yet to label the virus as a Global Crisis despite its spread through the Asian region.  As one might expect, travel and leisure stocks took it on the chin.  Companies that manufacture medical supplies such as surgical masks got a boost (no kidding).  The Casino and Gaming Sector was down by -5.84% on Tuesday and it tumbled another -1.2% yesterday.  With the Chinese lunar new year coming this weekend, the travel bans combined with fear of infection may impact revenues from the Asian gambling hotspot Macau.  Travel bans and decreased air travel may impact demand for fuel, applying further pressure on the already shaky energy sector.  OK, back to the tagline.  What happens to the market longer term if the virus expands further.  Let’s look at the SARS virus which caused a -$40 billion draw on the global economy in 2002 and 2003.  The S&P 500 dropped by around -22% in 2002 from January through November when the outbreak was announced and fell around -12% through March of 2003 when the virus was in full swing.  Spoiler alert... here is where things get good.  From its March low, the index climbed by around +25% through July of that year when the outbreak was considered defeated.  The S&P added another +11% through the end of the year, which ended up with an annual growth of +26.38%.  While 2002 was a rough one with the market giving up -23.37%, investors who held on were back above water by the end of the following year.  28 weeks after the outbreak took hold, the S&P500 was up by around +3% and 28 weeks after the outbreak ended, the index was up by roughly +10.3%. Further proof that a long term view remains the best medicine for all ailments.

 

THE MARKETS

 

Stocks were mixed and mostly unchanged yesterday.  Good earnings from IBM and strong housing numbers offset lingering fears of the Chinese Coronavirus. The S&P500 climbed by +0.3%, the Dow Jones Industrial Average slipped by -0.03%, the Russel 2000 traded off by -0.09%, and the NASDAQ Composite Index advanced by +0.14% thanks to the inoculated tech and chips sectors.  Bonds climbed and 10-year treasuries gave up -1 basis point to yield 1.76%.  Crude slipped by -2.81% on increasing stockpiles and the expectation of lower fuel demand.

 

NXT UP

 

– The Conference Board will release its Leading Index, which is expected to show a pullback of -0.2% after remaining flat in the prior month.

– The Kansas City Fed Manufacturing Index  is expected to come in at -6 compared to the last reading of -8.

– This morning Southwest Airlines missed estimates and we will hear from Travelers, Proctor & Gamble, JetBlue, American Airlines, Comcast, VF Corp, and Union Pacific before the ringing of the opening bell.  After the close E*trade, Skyworks Solutions, and Intel will announce their results.

 

daily chartbook 2020-01-23 -1

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