The potential global impact of the coronavirus upstaged the markets’ focus on earnings and economic data. The deadly virus has spread far beyond its origination in Wuhan China; as of Friday, over 900 cases (including 26 deaths) have been confirmed in 11 countries. On Friday, the unknown reach of the virus triggered a market selloff which was the largest decline since October 8, 2019. For the week, the Russell 2000® Index (‑2.20%) posted the biggest decline followed by the Dow Jones Industrial Average (-1.22%), S&P 500® Index (‑1.03%) and the Nasdaq (-0.79%). The selloff continues today, but if history is any clue, we would anticipate there will ultimately be a “go buy ‘em” moment.
Health officials in China have imposed travel restrictions effecting 36 million residents in ten cities. Precautions in preparation for Saturday’s Lunar New Year holiday include the indefinite closure of Shanghai Disneyland. The World Health Organization, citing insufficient data, declined to designate the virus a global health emergency; nevertheless, health officials in the U.S. are speeding testing to contain the spread. Some economists estimate that the virus may lower China’s GDP by one percent. Meanwhile, the International Monetary Fund raised its estimate of global GDP growth from 2.9% in 2019 to 3.3% in 2020.
Earnings season continued last week with Technology companies International Business Machines and Intel reported higher revenues and earnings. Mid-cap banks East West Bancorp and Signature Bank reported strong earnings growth (up 12% and 4%, respectively) despite lower interest rates. So far, 16% of companies in the S&P Index have reported quarterly results; of these, 70% reported better-than-expected earnings. Reports this week include Apple, Starbucks, Microsoft and Facebook.
The reach of the coronavirus extended to gold, oil and U.S. Treasuries; near-term, the virus will continue to cloud the markets until health officials are able to contain its spread. The markets will then refocus on economic data and corporate earnings.
Source: Pacific Global Management Investment Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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