Supercharged.

Supercharged.  Apple took a bite out of the equity markets yesterday after it announced that it would miss guidance as a result of the Coronavirus. Investors remain cautiously optimistic about the virus’ impact on stocks, despite warning signals.

 

N O T E W O R T H Y

 

  • Applesauce.  As reported here yesterday morning, Apple announced that it would miss its guidance for the quarter resulting in the stock taking a hit in yesterday’s session. Apple is one of those shiny iconic companies which very rarely appears to miss a step. Though it has not been a straight line to the top, the company has enjoyed the adoration of many different types of investors.  It is a tech company revered for its sleek hardware and it has slowly, and stealthily, moved into services, adding sticky revenue streams to its income statement.  The company is famously careful in its release strategy, never bowing to the pressure of consumers or its competitors to rush products out the door.  The company has returned relatively consistent top line and bottom line growth.  For all of these reasons, the company has earned a spot in many investors’ portfolios.  In working with clients, I rarely come across a stock portfolio that does not have some allocation to the shares.  So when Apple comes out with an admission that the Coronavirus will affect its performance, investors should take note. Not just Apple investors.  A Bloomberg study found that 150 of the S&P500 members have mentioned the Coronavirus. Interestingly, 56% of them said it was too early to tell if there would be an impact, 36% said that there would be only a minimal impact, and alas, 5% expect the impact to be severe (I know that doesn’t add up to 100% but I am quoting their numbers).  It would appear that corporate America is not too worried about the virus’ impact on performance.  Investors seem to agree.  Though the market has had its ups and downs since the outbreak, stocks are still right below record highs and the S&P500 is up by +4.32% year to date.  Apple has chosen a conservative path and announced that the virus will impact its business. If well-managed, widely held Apple is feeling the pinch we can expect that others will as well.
  • Afterburners engaged.  The Chinese Government has been hard at work to ensure that its economy remains immune to the COVID-19 virus.  There has been a steady stream of economic incentives coming from its central bank and the Government.  They have been injecting liquidity into the system through traditional and non-traditional methods. Yesterday, I made a brief mention of the Government’s release of some of it frozen pork reserves to stabilize food prices.  Various interest rates have been cut and banks have been given all sorts of incentives to loan money.  Last night WHILE YOU SLEPT the Chinese Government doubled down on incentives.  It announced that it would suspend social security contributions by small and medium companies while large companies would only have to contribute 50%, offering the struggling business community some relief.  The airline industry has been particularly hard hit as travel has been reduced to almost nothing.  Government officials are considering a number of strategies for the airlines including billions of dollars of direct injection as well as merging smaller carriers into larger ones.  The latest reports indicate just how severe the business impact is on the ground. There is a silver lining however.  Since the virus hit, China’s carbon dioxide emissions have been cut by -100 million metric tons.

 

THE MARKETS

 

Stocks sold off yesterday largely in response to Apple’s announcement that it would miss its earnings guidance as a result of the Coronavirus outbreak. Apple and its manufacturing ecosystem took a hit weighing on the broader indexes as well as the semiconductors, who count Apple as a big customer.  The S&P500 sold off by -0.29%, the Dow Jones Industrial Average dropped by -0.56%, the Russell 2000 traded down by -0.24%, and the NASDAQ Composite Index advanced by +0.02%.  Bonds traded up and 10-year treasury yields fell by -2 basis points to 1.56%.

 

NXT UP

 

– Housing Starts are expected to have fallen by -11.2% month over month compared to last month’s growth of +16.9%.

– Building Permits may have grown by +2.1% compared to last month’s -3.7% decline.

– The Producer Price Index (PPI) Excluding Food and Energy is expected to be 1.3% year over year compared to the last reading of 1.1%.

– The Fed will release the minutes from its last FOMC meeting at 2:00 PM EST.

– Fed officials Bostic, Mester, Kashkari, Kaplan, and Barkin will all speak today.

– This morning Dish Networks missed earnings expectations and we will hear from Analog Devices before the bell.  After the close we will hear from Avis Budget, Zillow, Albemarle, Mosaic, and Energy Transfer LP.

 

daily chartbook 2020-02-19

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